Is It Time To Buy Century City International Holdings Limited (HKG:355) Based Off Its PE Ratio?
I am writing today to help inform people who are new to the stock market and want to begin learning the link between Century City International Holdings Limited (HKG:355)’s fundamentals and stock market performance.
Century City International Holdings Limited (HKG:355) is currently trading at a trailing P/E of 6.9x, which is lower than the industry average of 18.5x. While 355 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. Today, I will explain what the P/E ratio is as well as what you should look out for when using it. View out our latest analysis for Century City International Holdings
Demystifying the P/E ratio
A common ratio used for relative valuation is the P/E ratio. 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 355
Price-Earnings Ratio = Price per share ÷ Earnings per share
355 Price-Earnings Ratio = HK$0.75 ÷ HK$0.108 = 6.9x
The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to 355, such as company lifetime and products sold. A common peer group is companies that exist in the same industry, which is what I use. 355’s P/E of 6.9x is lower than its industry peers (18.5x), which implies that each dollar of 355’s earnings is being undervalued by investors. As such, our analysis shows that 355 represents an under-priced stock.
Assumptions to watch out for
However, before you rush out to buy 355, it is important to note that this conclusion is based on two key assumptions. Firstly, our peer group contains companies that are similar to 355. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared lower risk firms with 355, then investors would naturally value it at a lower price since it is a riskier investment. The second assumption that must hold true is that the stocks we are comparing 355 to are fairly valued by the market. If this is violated, 355’s P/E may be lower than its peers as they are actually overvalued by investors.
What this means for you:
Since you may have already conducted your due diligence on 355, the undervaluation of the stock may mean it is a good time to top up on your current holdings. But at the end of the day, keep in mind that relative valuation relies heavily on critical assumptions I’ve outlined 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 355’s future growth? Take a look at our free research report of analyst consensus for 355’s outlook.
Past Track Record: Has 355 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 355’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.
