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The goal of this article is to teach you how to use price to earnings ratios (P/E ratios). We’ll show how you can use Regina Miracle International (Holdings) Limited’s (HKG:2199) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, Regina Miracle International (Holdings)’s P/E ratio is 27.32. In other words, at today’s prices, investors are paying HK$27.32 for every HK$1 in prior year profit.
See our latest analysis for Regina Miracle International (Holdings)
How Do You Calculate A P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Regina Miracle International (Holdings):
P/E of 27.32 = HK$6.21 ÷ HK$0.23 (Based on the year to September 2018.)
Is A High P/E Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each HK$1 of company earnings. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.
How Growth Rates Impact P/E Ratios
If earnings fall then in the future the ‘E’ will be lower. 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.
Notably, Regina Miracle International (Holdings) grew EPS by a whopping 64% in the last year. In contrast, EPS has decreased by 21%, annually, over 5 years.
How Does Regina Miracle International (Holdings)’s P/E Ratio Compare To Its Peers?
The P/E ratio essentially measures market expectations of a company. The image below shows that Regina Miracle International (Holdings) has a higher P/E than the average (10.2) P/E for companies in the luxury industry.
That means that the market expects Regina Miracle International (Holdings) will outperform other companies in its industry. 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.
Don’t Forget: The P/E Does Not Account For Debt or Bank Deposits
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. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.