Is Goal Rise Logistics (China) Holdings Limited's (HKG:1529) P/E Ratio Really That Good? - Yahoo Finance

This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll apply a basic P/E ratio analysis to Goal Rise Logistics (China) Holdings Limited's (HKG:1529), to help you decide if the stock is worth further research. What is Goal Rise Logistics (China) Holdings's P/E ratio? Well, based on the last twelve months it is 8.93. In other words, at today's prices, investors are paying HK$8.93 for every HK$1 in prior year profit.

Check out our latest analysis for Goal Rise Logistics (China) Holdings

How Do I Calculate A 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 Goal Rise Logistics (China) Holdings:

P/E of 8.93 = CNY0.20 (Note: this is the share price in the reporting currency, namely, CNY ) ÷ CNY0.02 (Based on the trailing twelve months 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 necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.

How Does Goal Rise Logistics (China) Holdings's P/E Ratio Compare To Its Peers?

One good way to get a quick read on what market participants expect of a company is to look at its P/E ratio. We can see in the image below that the average P/E (10.3) for companies in the logistics industry is higher than Goal Rise Logistics (China) Holdings's P/E.

SEHK:1529 Price Estimation Relative to Market, February 10th 2020

Goal Rise Logistics (China) Holdings's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Many investors like to buy stocks when the market is pessimistic about their prospects. You should delve deeper. I like to check if company insiders have been buying or selling.

How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. And in that case, the P/E ratio itself will drop rather quickly. And as that P/E ratio drops, the company will look cheap, unless its share price increases.

Goal Rise Logistics (China) Holdings shrunk earnings per share by 16% over the last year. But over the longer term (3 years), earnings per share have increased by 34%. And over the longer term (5 years) earnings per share have decreased 10% annually. 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

One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. So it won't reflect the advantage of cash, or disadvantage of debt. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

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).

How Does Goal Rise Logistics (China) Holdings's Debt Impact Its P/E Ratio?

Goal Rise Logistics (China) Holdings has net cash of CN¥65m. This is fairly high at 40% of its market capitalization. That might mean balance sheet strength is important to the business, but should also help push the P/E a bit higher than it would otherwise be.

The Bottom Line On Goal Rise Logistics (China) Holdings's P/E Ratio

Goal Rise Logistics (China) Holdings's P/E is 8.9 which is below average (10.0) in the HK market. The recent drop in earnings per share would almost certainly temper expectations, the relatively strong balance sheet will allow the company time to invest in growth. If it achieves that, then there's real potential that the low P/E could eventually indicate undervaluation.

Investors should be looking to buy stocks that the market is wrong about. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. Although we don't have analyst forecasts you might want to assess this data-rich visualization of earnings, revenue and cash flow.

But note: Goal Rise Logistics (China) Holdings may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).

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.

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Is Goal Rise Logistics (China) Holdings Limited's (HKG:1529) P/E Ratio Really That Good? - Yahoo Finance
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