In This Article:
Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We’ll show how you can use Flat Glass Group Co., Ltd.’s (HKG:6865) P/E ratio to inform your assessment of the investment opportunity. Flat Glass Group has a P/E ratio of 9.32, based on the last twelve months. That is equivalent to an earnings yield of about 11%.
See our latest analysis for Flat Glass Group
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price (in reporting currency) ÷ Earnings per Share (EPS)
Or for Flat Glass Group:
P/E of 9.32 = CN¥2.23 (Note: this is the share price in the reporting currency, namely, CNY ) ÷ CN¥0.24 (Based on the trailing twelve months to September 2018.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That isn’t a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business’s prospects, relative to stocks with a lower P/E.
How Growth Rates Impact P/E Ratios
When earnings fall, the ‘E’ decreases, over time. That means unless the share price falls, the P/E will increase in a few years. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.
Flat Glass Group’s earnings per share fell by 5.7% in the last twelve months. And it has shrunk its earnings per share by 9.9% per year over the last five years. So you wouldn’t expect a very high P/E.
How Does Flat Glass Group’s P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. We can see in the image below that the average P/E (14) for companies in the semiconductor industry is higher than Flat Glass Group’s P/E.
This suggests that market participants think Flat Glass Group will underperform other companies in its industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. You should delve deeper. I like to check if company insiders have been buying or selling.
Remember: P/E Ratios Don’t Consider The Balance Sheet
Don’t forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.