What Is Goal Forward Holdings's (HKG:1854) P/E Ratio After Its Share Price Tanked? - Yahoo Finance

Unfortunately for some shareholders, the Goal Forward Holdings (HKG:1854) share price has dived 34% in the last thirty days. Given the 69% drop over the last year, some shareholders might be worried that they have become bagholders. For those wondering, a bagholder is someone who keeps holding a losing stock indefinitely, without taking the time to consider its prospects carefully, going forward.

Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). 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.

Check out our latest analysis for Goal Forward Holdings

How Does Goal Forward Holdings's P/E Ratio Compare To Its Peers?

Goal Forward Holdings's P/E of 13.32 indicates relatively low sentiment towards the stock. We can see in the image below that the average P/E (18.2) for companies in the consumer retailing industry is higher than Goal Forward Holdings's P/E.

SEHK:1854 Price Estimation Relative to Market, March 23rd 2020

This suggests that market participants think Goal Forward Holdings will underperform other companies in its industry. While current expectations are low, the stock could be undervalued if the situation is better than the market assumes. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.

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. Earnings growth means that in the future the 'E' will be higher. That means even if the current P/E is high, it will reduce over time if the share price stays flat. And as that P/E ratio drops, the company will look cheap, unless its share price increases.

Goal Forward Holdings shrunk earnings per share by 60% over the last year. But it has grown its earnings per share by 34% per year over the last three years.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank

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. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.

Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.

How Does Goal Forward Holdings's Debt Impact Its P/E Ratio?

Goal Forward Holdings has net debt worth just 1.6% of its market capitalization. The market might award it a higher P/E ratio if it had net cash, but its unlikely this low level of net borrowing is having a big impact on the P/E multiple.

The Bottom Line On Goal Forward Holdings's P/E Ratio

Goal Forward Holdings's P/E is 13.3 which is above average (8.6) in its market. With some debt but no EPS growth last year, the market has high expectations of future profits. What can be absolutely certain is that the market has become significantly less optimistic about Goal Forward Holdings over the last month, with the P/E ratio falling from 20.1 back then to 13.3 today. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for a contrarian, it may signal opportunity.

When the market is wrong about a stock, it gives savvy investors an opportunity. 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.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E 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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What Is Goal Forward Holdings's (HKG:1854) P/E Ratio After Its Share Price Tanked? - Yahoo Finance
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