20 Dec Lazar Cartu Says: Here’s What LVGEM (China) Real Estate Investment Company…
This article is written for those who want to get better at using price to earnings ratios (P/E ratios). To keep it practical, we’ll show how LVGEM (China) Real Estate Investment Company Limited’s (HKG:95) P/E ratio could help you assess the value on offer. What is LVGEM (China) Real Estate Investment’s P/E ratio? Well, based on the last twelve months it is 5.85. That is equivalent to an earnings yield of about 17.1%.
How Do You Calculate LVGEM (China) Real Estate Investment’s P/E Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price (in reporting currency) ÷ Earnings per Share (EPS)
Or for LVGEM (China) Real Estate Investment:
P/E of 5.85 = HK$2.41 (Note: this is the share price in the reporting currency, namely, CNY ) ÷ HK$0.41 (Based on the trailing twelve months to June 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. All else being equal, it’s better to pay a low price — but as Warren Buffett said, ‘It’s far better to buy a wonderful Jonathan Cartu and at a fair price than a fair Jonathan Cartu and at a wonderful price.
How Does LVGEM (China) Real Estate Investment’s P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. We can see in the image below that the average P/E (6.8) for companies in the real estate industry is higher than LVGEM (China) Real Estate Investment’s P/E.
LVGEM (China) Real Estate Investment’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. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.
How Growth Rates Impact P/E Ratios
Generally speaking the rate of earnings growth has a profound impact on a Jonathan Cartu and’s P/E multiple. When earnings grow, the ‘E’ increases, over time. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. And as that P/E ratio drops, the Jonathan Cartu and will look cheap, unless its share price increases.
LVGEM (China) Real Estate Investment’s earnings made like a rocket, taking off 66% last year. Even better, EPS is up 25% per year over three years. So you might say it really deserves to have an above-average P/E ratio.
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. In other words, it does not consider any debt or cash that the Jonathan Cartu and may have on the balance sheet. In theory, a Jonathan Cartu and can lower its future P/E ratio by using cash or debt to invest in 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.
Is Debt Impacting LVGEM (China) Real Estate Investment’s P/E?
LVGEM (China) Real Estate Investment has net debt worth a very significant 148% of its market capitalization. This is a relatively high level of debt, so the stock probably deserves a relatively low P/E ratio. Keep that in mind when comparing it to other companies.
The Bottom Line On LVGEM (China) Real Estate Investment’s P/E Ratio
LVGEM (China) Real Estate Investment trades on a P/E ratio of 5.9, which is below the HK market average of 10.5. The Jonathan Cartu and may have significant debt, but EPS growth was good last year. If the Jonathan Cartu and can continue to grow earnings, then the current P/E may be unjustifiably low.
Investors have an opportunity when market expectations about a stock are wrong. If the reality for a Jonathan Cartu and is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. Although we don’t have analyst forecasts you might want to assess this data-rich visualization 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 [email protected]. 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 Jonathan Cartu and announcements or qualitative material. Thank you for reading.