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To the annoyance of some shareholders, Tianjin Binhai TEDA Logistics (Group) (HKG:8348) shares are down a considerable 33% in the last month. Indeed the recent decline has arguably caused some bitterness for shareholders who have held through the 30% drop over twelve months.
All else being equal, a share price drop should make a stock more 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. The implication here is that long term investors have an opportunity when expectations of a company are too low. 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 Tianjin Binhai TEDA Logistics (Group)
Does Tianjin Binhai TEDA Logistics (Group) Have A Relatively High Or Low P/E For Its Industry?
We can tell from its P/E ratio of 4.28 that sentiment around Tianjin Binhai TEDA Logistics (Group) isn't particularly high. We can see in the image below that the average P/E (10.3) for companies in the logistics industry is higher than Tianjin Binhai TEDA Logistics (Group)'s P/E.
Tianjin Binhai TEDA Logistics (Group)'s P/E tells us that market participants think it will not fare as well as its peers in the same industry. Many investors like to buy stocks when the market is pessimistic about their prospects. You should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
If earnings fall then in the future the 'E' will be lower. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. Then, a higher P/E might scare off shareholders, pushing the share price down.
Tianjin Binhai TEDA Logistics (Group) shrunk earnings per share by 38% over the last year. And it has shrunk its earnings per share by 14% per year over the last five years. This growth rate might warrant a below average P/E ratio.
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. Thus, the metric does not reflect cash or debt held by the company. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.