Gemdale Properties and Investment (HKG:535) shares have continued recent momentum with a 30% gain in the last month alone. That brought the twelve month gain to a very sharp 53%.

Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.

See our latest analysis for Gemdale Properties and Investment

Does Gemdale Properties and Investment Have A Relatively High Or Low P/E For Its Industry?

Gemdale Properties and Investment's P/E is 6.99. The image below shows that Gemdale Properties and Investment has a P/E ratio that is roughly in line with the real estate industry average (6.6).

Gemdale Properties and Investment's P/E tells us that market participants think its prospects are roughly in line with its industry. If the company has better than average prospects, then the market might be underestimating it. Checking factors such as director buying and selling. could help you form your own view on if that will happen.

How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. And in that case, the P/E ratio itself will drop rather quickly. Then, a lower P/E should attract more buyers, pushing the share price up.

In the last year, Gemdale Properties and Investment grew EPS like Taylor Swift grew her fan base back in 2010; the 54% gain was both fast and well deserved. The cherry on top is that the five year growth rate was an impressive 23% per year. So I'd be surprised if the P/E ratio was not above average.

Don't Forget: The P/E Does Not Account For Debt or Bank Deposits

Don't forget that the P/E ratio considers market capitalization. So it won't reflect the advantage of cash, or disadvantage of debt. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.