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Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. We'll show how you can use ZMFY Automobile Glass Services Limited's (HKG:8135) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, ZMFY Automobile Glass Services's P/E ratio is 16.12. That means that at current prices, buyers pay HK$16.12 for every HK$1 in trailing yearly profits.
Check out our latest analysis for ZMFY Automobile Glass Services
How Do You Calculate A P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price (in reporting currency) ÷ Earnings per Share (EPS)
Or for ZMFY Automobile Glass Services:
P/E of 16.12 = CN¥0.29 (Note: this is the share price in the reporting currency, namely, CNY ) ÷ CN¥0.018 (Based on the trailing twelve months to March 2019.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each HK$1 of company earnings. All else being equal, it's better to pay a low price -- but as Warren Buffett said, 'It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.'
How Growth Rates Impact P/E Ratios
Probably the most important factor in determining what P/E a company trades on is the earnings growth. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. And in that case, the P/E ratio itself will drop rather quickly. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
ZMFY Automobile Glass Services shrunk earnings per share by 51% over the last year. And over the longer term (5 years) earnings per share have decreased 9.8% annually. This growth rate might warrant a below average P/E ratio.
Does ZMFY Automobile Glass Services Have A Relatively High Or Low P/E For Its Industry?
The P/E ratio indicates whether the market has higher or lower expectations of a company. The image below shows that ZMFY Automobile Glass Services has a higher P/E than the average (11.3) P/E for companies in the specialty retail industry.
Its relatively high P/E ratio indicates that ZMFY Automobile Glass Services shareholders think it will perform better than other companies in its industry classification. 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.