How Does Tianjin Port Development Holdings's (HKG:3382) P/E Compare To Its Industry, After The Share Price Drop?
To the annoyance of some shareholders, Tianjin Port Development Holdings (HKG:3382) shares are down a considerable 32% in the last month. That drop has capped off a tough year for shareholders, with the share price down 47% in that time.
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. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
View our latest analysis for Tianjin Port Development Holdings
How Does Tianjin Port Development Holdings's P/E Ratio Compare To Its Peers?
Tianjin Port Development Holdings's P/E of 9.24 indicates some degree of optimism towards the stock. You can see in the image below that the average P/E (6.3) for companies in the infrastructure industry is lower than Tianjin Port Development Holdings's P/E.
Its relatively high P/E ratio indicates that Tianjin Port Development Holdings shareholders think it will perform better than other companies in its industry classification. Shareholders are clearly optimistic, but the future is always uncertain. So further research is always essential. I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
When earnings fall, the 'E' decreases, over time. That means unless the share price falls, the P/E will increase in a few years. Then, a higher P/E might scare off shareholders, pushing the share price down.
Tianjin Port Development Holdings saw earnings per share decrease by 55% last year. And EPS is down 16% a year, over the last 5 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. So it won't reflect the advantage of cash, or disadvantage of debt. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).
So What Does Tianjin Port Development Holdings's Balance Sheet Tell Us?
Net debt totals a substantial 131% of Tianjin Port Development Holdings's market cap. This level of debt justifies a relatively low P/E, so remain cognizant of the debt, if you're comparing it to other stocks.
The Bottom Line On Tianjin Port Development Holdings's P/E Ratio
Tianjin Port Development Holdings has a P/E of 9.2. That's around the same as the average in the HK market, which is 8.6. With meaningful debt, and no earnings per share growth last year, even an average P/E indicates that the market a significant improvement from the business. What can be absolutely certain is that the market has become more pessimistic about Tianjin Port Development Holdings over the last month, with the P/E ratio falling from 13.5 back then to 9.2 today. For those who prefer invest in growth, this stock apparently offers limited promise, but the deep value investors may find the pessimism around this stock enticing.
Investors should be looking to buy stocks that the market is wrong about. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. We don't have analyst forecasts, but shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.
You might be able to find a better buy than Tianjin Port Development 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.
