In This Article:
TS Wonders Holding (HKG:1767) shareholders are no doubt pleased to see that the share price has bounced 37% in the last month alone, although it is still down 32% over the last quarter. However, that doesn't change the fact that longer term shareholders might have been mercilessly wrecked by the 57% share price decline throughout the year.
All else being equal, a sharp share price increase should make a stock less attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. So some would prefer to hold off buying when there is a lot of optimism towards a stock. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
Check out our latest analysis for TS Wonders Holding
Does TS Wonders Holding Have A Relatively High Or Low P/E For Its Industry?
TS Wonders Holding's P/E of 19.74 indicates some degree of optimism towards the stock. As you can see below, TS Wonders Holding has a higher P/E than the average company (11.9) in the food industry.
Its relatively high P/E ratio indicates that TS Wonders Holding shareholders think it will perform better than other companies in its industry classification. The market is optimistic about the future, but that doesn't guarantee future growth. 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
P/E ratios primarily reflect market expectations around earnings growth rates. When earnings grow, the 'E' increases, over time. That means unless the share price increases, the P/E will reduce in a few years. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
TS Wonders Holding's earnings per share grew by 9.7% in the last twelve months.
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. That means it doesn't take debt or cash into account. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).
While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.