Yahoo Finance How Does Riverstone Holdings's (SGX:AP4) P/E Compare To Its Industry, After Its Big Share Price Gain?
It's really great to see that even after a strong run, Riverstone Holdings (SGX:AP4) shares have been powering on, with a gain of 42% in the last thirty days. Looking back a bit further, we're also happy to report the stock is up 65% in the last year.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. So some would prefer to hold off buying when there is a lot of optimism towards a stock. Perhaps the simplest way to get a read on investors' expectations of a business 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.
See our latest analysis for Riverstone Holdings
How Does Riverstone Holdings's P/E Ratio Compare To Its Peers?
Riverstone Holdings has a P/E ratio of 28.15. As you can see below Riverstone Holdings has a P/E ratio that is fairly close for the average for the medical equipment industry, which is 28.8.
That indicates that the market expects Riverstone Holdings will perform roughly in line with other companies in its industry. So if Riverstone Holdings actually outperforms its peers going forward, that should be a positive for the share price. Checking factors such as director buying and selling. could help you form your own view on if that will happen.
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. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
Riverstone Holdings maintained roughly steady earnings over the last twelve months. But it has grown its earnings per share by 13% per year over the last five years.
Remember: P/E Ratios Don't Consider The Balance Sheet
It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. Thus, the metric does not reflect cash or debt held by the company. 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.
While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.
Riverstone Holdings's Balance Sheet
Riverstone Holdings has net cash of RM118m. That should lead to a higher P/E than if it did have debt, because its strong balance sheets gives it more options.
The Verdict On Riverstone Holdings's P/E Ratio
Riverstone Holdings has a P/E of 28.1. That's higher than the average in its market, which is 11.3. EPS was up modestly better over the last twelve months. And the net cash position provides the company with multiple options. The high P/E suggests the market thinks further growth will come. What is very clear is that the market has become significantly more optimistic about Riverstone Holdings over the last month, with the P/E ratio rising from 19.8 back then to 28.1 today. If you like to buy stocks that have recently impressed the market, then this one might be a candidate; but if you prefer to invest when there is 'blood in the streets', then you may feel the opportunity has passed.
Investors should be looking to buy stocks that the market is wrong about. People often underestimate remarkable growth -- so investors can make money when fast growth is not fully appreciated. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.
Of course you might be able to find a better stock than Riverstone Holdings. So you may wish to see this free collection of other companies that have grown earnings strongly.
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.
