Does China Singyes Solar Technologies Holdings Limited’s (HKG:750) PE Ratio Signal A Buying Opportunity?
I am writing today to help inform people who are new to the stock market and want to begin learning the link between China Singyes Solar Technologies Holdings Limited (HKG:750)’s fundamentals and stock market performance.
China Singyes Solar Technologies Holdings Limited (HKG:750) is currently trading at a trailing P/E of 11.4x, which is lower than the industry average of 13.3x. While this makes 750 appear like a great stock to buy, you might change your mind after I explain the assumptions behind the P/E ratio. In this article, I will break down what the P/E ratio is, how to interpret it and what to watch out for. See our latest analysis for China Singyes Solar Technologies Holdings
Breaking down the P/E ratio
A common ratio used for relative valuation is the P/E ratio. 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 750
Price-Earnings Ratio = Price per share ÷ Earnings per share
750 Price-Earnings Ratio = CN¥1.97 ÷ CN¥0.172 = 11.4x
The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful when you compare it with other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to 750, such as company lifetime and products sold. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. 750’s P/E of 11.4x is lower than its industry peers (13.3x), which implies that each dollar of 750’s earnings is being undervalued by investors. Therefore, according to this analysis, 750 is an under-priced stock.
A few caveats
However, before you rush out to buy 750, it is important to note that this conclusion is based on two key assumptions. Firstly, our peer group contains companies that are similar to 750. 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 750, 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 750 to are fairly valued by the market. If this does not hold, there is a possibility that 750’s P/E is lower because our peer group is overvalued by the market.
What this means for you:
If your personal research into the stock confirms what the P/E ratio is telling you, it might be a good time to add more of 750 to your portfolio. But keep in mind that the usefulness of relative valuation depends on whether you are comfortable with making the assumptions I mentioned above. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for 750’s future growth? Take a look at our free research report of analyst consensus for 750’s outlook.
Past Track Record: Has 750 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 750’s historicals for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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.
