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Should You Be Tempted To Buy Globe International Limited (ASX:GLB) At Its Current PE Ratio?

Globe International Limited (ASX:GLB) trades with a trailing P/E of 9.8x, which is lower than the industry average of 11.9x. While GLB 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 break down what the P/E ratio is, how to interpret it and what to watch out for. Check out our latest analysis for Globe International

What you need to know about the P/E ratio

ASX:GLB PE PEG Gauge Nov 28th 17
ASX:GLB PE PEG Gauge Nov 28th 17

The P/E ratio is a popular ratio used in relative valuation since earnings power is a key driver of investment value. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.

P/E Calculation for GLB

Price-Earnings Ratio = Price per share ÷ Earnings per share

GLB Price-Earnings Ratio = A$1.2 ÷ A$0.123 = 9.8x

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 GLB, such as company lifetime and products sold. A common peer group is companies that exist in the same industry, which is what I use. GLB’s P/E of 9.8x is lower than its industry peers (11.9x), which implies that each dollar of GLB’s earnings is being undervalued by investors. As such, our analysis shows that GLB represents an under-priced stock.

Assumptions to be aware of

However, before you rush out to buy GLB, it is important to note that this conclusion is based on two key assumptions. The first is that our “similar companies” are actually similar to GLB, or else the difference in P/E might be a result of other factors. For example, if you are comparing lower risk firms with GLB, 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 GLB to are fairly valued by the market. If this does not hold, there is a possibility that GLB’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

Are you a shareholder? You may have already conducted fundamental analysis on the stock as a shareholder, so its current undervaluation could signal a good buying opportunity to increase your exposure to GLB. Now that you understand the ins and outs of the PE metric, you should know to bear in mind its limitations before you make an investment decision.

Are you a potential investor? If you are considering investing in GLB, looking at the PE ratio on its own is not enough to make a well-informed decision. You will benefit from looking at additional analysis and considering its intrinsic valuation along with other relative valuation metrics like PEG and EV/Sales.

PE is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Globe International for a more in-depth analysis of the stock to help you make a well-informed investment decision. Since we know a limitation of PE is it doesn’t properly account for growth, you can use our free platform to see my list of stocks with a high growth potential and see if their PE is still reasonable.


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.

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