Should You Buy Siberian Mining Group Company Limited (HKG:1142) At This PE Ratio?
Siberian Mining Group Company Limited (SEHK:1142) is currently trading at a trailing P/E of 0.1x, which is lower than the industry average of 14.3x. While 1142 might seem like an attractive stock to buy, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. In this article, I will explain what the P/E ratio is as well as what you should look out for when using it. View our latest analysis for Siberian Mining Group
What you need to know about the P/E ratio
The P/E ratio is one of many ratios used in relative valuation. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.
P/E Calculation for 1142
Price-Earnings Ratio = Price per share ÷ Earnings per share
1142 Price-Earnings Ratio = HK$0.14 ÷ HK$1.062 = 0.1x
On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. We preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to 1142, such as capital structure and profitability. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. Since 1142’s P/E of 0.1x is lower than its industry peers (14.3x), it means that investors are paying less than they should for each dollar of 1142’s earnings. As such, our analysis shows that 1142 represents an under-priced stock.
A few caveats
However, before you rush out to buy 1142, it is important to note that this conclusion is based on two key assumptions. Firstly, our peer group contains companies that are similar to 1142. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you are comparing lower risk firms with 1142, then its P/E would naturally be lower than its peers, as investors would value those with lower risk at a higher price. The second assumption that must hold true is that the stocks we are comparing 1142 to are fairly valued by the market. If this does not hold, there is a possibility that 1142’s P/E is lower because our peer group is overvalued by the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
