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What Does COSCO SHIPPING Holdings Co., Ltd.'s (HKG:1919) P/E Ratio Tell You?

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This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll show how you can use COSCO SHIPPING Holdings Co., Ltd.'s (HKG:1919) P/E ratio to inform your assessment of the investment opportunity. What is COSCO SHIPPING Holdings's P/E ratio? Well, based on the last twelve months it is 13.63. That is equivalent to an earnings yield of about 7.3%.

View our latest analysis for COSCO SHIPPING Holdings

How Do I Calculate COSCO SHIPPING Holdings's Price To Earnings Ratio?

The formula for P/E is:

Price to Earnings Ratio = Share Price (in reporting currency) ÷ Earnings per Share (EPS)

Or for COSCO SHIPPING Holdings:

P/E of 13.63 = HK$2.84 (Note: this is the share price in the reporting currency, namely, CNY ) ÷ HK$0.21 (Based on the year to September 2019.)

Is A High Price-to-Earnings Ratio Good?

The higher the P/E ratio, the higher the price tag of a business, relative to its trailing earnings. That isn't a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business's prospects, relative to stocks with a lower P/E.

Does COSCO SHIPPING Holdings 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. As you can see below COSCO SHIPPING Holdings has a P/E ratio that is fairly close for the average for the shipping industry, which is 13.4.

SEHK:1919 Price Estimation Relative to Market, December 19th 2019
SEHK:1919 Price Estimation Relative to Market, December 19th 2019

COSCO SHIPPING Holdings's P/E tells us that market participants think its prospects are roughly in line with its industry. So if COSCO SHIPPING Holdings actually outperforms its peers going forward, that should be a positive for the share price. Checking factors such as director buying and selling. could help you form your own view on if that will happen.

How Growth Rates Impact P/E Ratios

Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.

COSCO SHIPPING Holdings's earnings made like a rocket, taking off 183% last year.

Remember: P/E Ratios Don't Consider The Balance Sheet

Don't forget that the P/E ratio considers market capitalization. That means it doesn't take debt or cash into account. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.

While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.

How Does COSCO SHIPPING Holdings's Debt Impact Its P/E Ratio?

COSCO SHIPPING Holdings's net debt is considerable, at 109% of its market cap. If you want to compare its P/E ratio to other companies, you must keep in mind that these debt levels would usually warrant a relatively low P/E.

The Verdict On COSCO SHIPPING Holdings's P/E Ratio

COSCO SHIPPING Holdings has a P/E of 13.6. That's higher than the average in its market, which is 10.5. Its meaningful level of debt should warrant a lower P/E ratio, but the fast EPS growth is a positive. So despite the debt it is, perhaps, not unreasonable to see a high P/E ratio.

When the market is wrong about a stock, it gives savvy investors an opportunity. People often underestimate remarkable growth -- so investors can make money when fast growth is not fully appreciated. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.

You might be able to find a better buy than COSCO SHIPPING Holdings. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.