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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 Get Nice Holdings Limited’s (HKG:64) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, Get Nice Holdings’s P/E ratio is 10.23. That means that at current prices, buyers pay HK$10.23 for every HK$1 in trailing yearly profits.
View our latest analysis for Get Nice Holdings
How Do I Calculate A Price To Earnings Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Get Nice Holdings:
P/E of 10.23 = HK$0.28 ÷ HK$0.028 (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. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.
Get Nice Holdings saw earnings per share decrease by 45% last year. And it has shrunk its earnings per share by 28% per year over the last three years. This growth rate might warrant a low P/E ratio. This growth rate might warrant a low P/E ratio.
How Does Get Nice Holdings’s P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. The image below shows that Get Nice Holdings has a lower P/E than the average (11.8) P/E for companies in the diversified financial industry.
Its relatively low P/E ratio indicates that Get Nice Holdings shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with Get Nice Holdings, it’s quite possible it could surprise on the upside. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.
Remember: P/E Ratios Don’t Consider The Balance Sheet
It’s important to note that the P/E ratio considers the market capitalization, not the enterprise value. 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.