Advertisement
U.S. Markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0797
    +0.0003 (+0.0324%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • Vix

    13.01
    0.00 (0.00%)
     
  • GBP/USD

    1.2625
    +0.0002 (+0.0189%)
     
  • USD/JPY

    151.3030
    -0.0690 (-0.0456%)
     
  • BTC-USD

    69,900.41
    -523.20 (-0.74%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,369.44
    +201.37 (+0.50%)
     

Do You Know What SITC International Holdings Company Limited’s (HKG:1308) P/E Ratio Means?

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 SITC International Holdings Company Limited’s (HKG:1308) P/E ratio to inform your assessment of the investment opportunity. SITC International Holdings has a P/E ratio of 11.66, based on the last twelve months. That means that at current prices, buyers pay HK$11.66 for every HK$1 in trailing yearly profits.

Check out our latest analysis for SITC International Holdings

How Do I Calculate SITC International Holdings’s Price To Earnings Ratio?

The formula for P/E is:

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

Or for SITC International Holdings:

P/E of 11.66 = $0.86 (Note: this is the share price in the reporting currency, namely, USD ) ÷ $0.073 (Based on the trailing twelve months to June 2018.)

Is A High Price-to-Earnings Ratio Good?

A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.

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. When earnings grow, the ‘E’ increases, over time. That means even if the current P/E is high, it will reduce over time if the share price stays flat. Then, a lower P/E should attract more buyers, pushing the share price up.

SITC International Holdings increased earnings per share by a whopping 40% last year. And earnings per share have improved by 11% annually, over the last five years. So we’d generally expect it to have a relatively high P/E ratio.

How Does SITC International Holdings’s P/E Ratio Compare To Its Peers?

The P/E ratio indicates whether the market has higher or lower expectations of a company. You can see in the image below that the average P/E (11.8) for companies in the shipping industry is roughly the same as SITC International Holdings’s P/E.

SEHK:1308 PE PEG Gauge December 25th 18
SEHK:1308 PE PEG Gauge December 25th 18

SITC International Holdings’s P/E tells us that market participants think its prospects are roughly in line with its industry. The company could surprise by performing better than average, in the future. I inform my view byby checking management tenure and remuneration, among other things.

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

It’s important to note that the P/E ratio considers the market capitalization, not the enterprise value. Thus, the metric does not reflect cash or debt held by the company. 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).

Is Debt Impacting SITC International Holdings’s P/E?

Since SITC International Holdings holds net cash of US$76m, it can spend on growth, justifying a higher P/E ratio than otherwise.

The Bottom Line On SITC International Holdings’s P/E Ratio

SITC International Holdings’s P/E is 11.7 which is above average (10.3) in the HK market. Its strong balance sheet gives the company plenty of resources for extra growth, and it has already proven it can grow. So it is not surprising the market is probably extrapolating recent growth well into the future, reflected in the relatively 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 visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.

Of course you might be able to find a better stock than SITC International Holdings. So you may wish to see this free collection of other companies that have grown earnings strongly.

To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Advertisement