Yahoo Finance Is CK Infrastructure Holdings Limited’s (HKG:1038) PE Ratio A Signal To Sell For Investors?
The content of this article will benefit those of you who are starting to educate yourself about investing in the stock market and want to better understand how you can grow your money by investing in CK Infrastructure Holdings Limited (HKG:1038).
CK Infrastructure Holdings Limited (HKG:1038) is trading with a trailing P/E of 14.2x, which is higher than the industry average of 14.2x. While 1038 might seem like a stock to avoid or sell if you own it, 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 CK Infrastructure Holdings
Demystifying the P/E ratio
P/E is a popular ratio used for relative valuation. 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 1038
Price-Earnings Ratio = Price per share ÷ Earnings per share
1038 Price-Earnings Ratio = HK$57.6 ÷ HK$4.07 = 14.2x
The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful when you compare it with other similar companies. We preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to 1038, such as capital structure and profitability. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do.
Assumptions to watch out for
However, before you rush out to sell your 1038 shares, it is important to note that this conclusion is based on two key assumptions. Firstly, our peer group contains companies that are similar to 1038. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared higher growth firms with 1038, then its P/E would naturally be lower since investors would reward its peers’ higher growth with a higher price. The second assumption that must hold true is that the stocks we are comparing 1038 to are fairly valued by the market. If this does not hold, there is a possibility that 1038’s P/E is lower because our peer group is overvalued by the market.
What this means for you:
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 1038. 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. 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 1038’s future growth? Take a look at our free research report of analyst consensus for 1038’s outlook.
Past Track Record: Has 1038 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 1038’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.
