In This Article:
The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). We'll apply a basic P/E ratio analysis to Meilleure Health International Industry Group Limited's (HKG:2327), to help you decide if the stock is worth further research. Based on the last twelve months, Meilleure Health International Industry Group's P/E ratio is 25.32. That is equivalent to an earnings yield of about 3.9%.
See our latest analysis for Meilleure Health International Industry Group
How Do You Calculate A P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for Meilleure Health International Industry Group:
P/E of 25.32 = HK$0.53 ÷ HK$0.02 (Based on the trailing twelve months to June 2019.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each HK$1 of company earnings. That isn't necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.
How Does Meilleure Health International Industry Group's P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. The image below shows that Meilleure Health International Industry Group has a higher P/E than the average (10.2) P/E for companies in the trade distributors industry.
Meilleure Health International Industry Group's P/E tells us that market participants think the company will perform better than its industry peers, going forward. Shareholders are clearly optimistic, but the future is always uncertain. So investors should always consider the P/E ratio alongside other factors, such as whether company directors have been buying shares.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. And in that case, the P/E ratio itself will drop rather quickly. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.
Meilleure Health International Industry Group's earnings per share fell by 7.5% in the last twelve months. But over the longer term (3 years), earnings per share have increased by 60%. And over the longer term (5 years) earnings per share have decreased 5.0% annually. So you wouldn't expect a very high P/E.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
The 'Price' in P/E reflects the market capitalization of the company. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.