Advertisement
Australia markets closed
  • ALL ORDS

    8,153.70
    +80.10 (+0.99%)
     
  • ASX 200

    7,896.90
    +77.30 (+0.99%)
     
  • AUD/USD

    0.6519
    -0.0017 (-0.26%)
     
  • OIL

    83.11
    +1.76 (+2.16%)
     
  • GOLD

    2,254.80
    +42.10 (+1.90%)
     
  • Bitcoin AUD

    108,589.21
    +2,731.89 (+2.58%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • AUD/EUR

    0.6033
    +0.0002 (+0.03%)
     
  • AUD/NZD

    1.0904
    +0.0024 (+0.22%)
     
  • NZX 50

    12,105.29
    +94.63 (+0.79%)
     
  • NASDAQ

    18,254.69
    -26.15 (-0.14%)
     
  • FTSE

    7,952.62
    +20.64 (+0.26%)
     
  • Dow Jones

    39,807.37
    +47.29 (+0.12%)
     
  • DAX

    18,492.49
    +15.40 (+0.08%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • NIKKEI 225

    40,168.07
    -594.66 (-1.46%)
     

Does Vision International Holdings Limited’s (HKG:8107) PE Ratio Signal A Buying Opportunity?

Vision International Holdings Limited (SEHK:8107) is currently trading at a trailing P/E of 8.7x, which is lower than the industry average of 12.8x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind. In this article, I will deconstruct the P/E ratio and highlight what you need to be careful of when using the P/E ratio. Check out our latest analysis for Vision International Holdings

Breaking down the P/E ratio

SEHK:8107 PE PEG Gauge Jun 20th 18
SEHK:8107 PE PEG Gauge Jun 20th 18

The P/E ratio is a popular ratio used in relative valuation since earnings power is a key driver of investment value. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.

ADVERTISEMENT

P/E Calculation for 8107

Price-Earnings Ratio = Price per share ÷ Earnings per share

8107 Price-Earnings Ratio = HK$0.16 ÷ HK$0.019 = 8.7x

On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful 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 8107, such as capital structure and profitability. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. Since 8107’s P/E of 8.7x is lower than its industry peers (12.8x), it means that investors are paying less than they should for each dollar of 8107’s earnings. As such, our analysis shows that 8107 represents an under-priced stock.

Assumptions to watch out for

Before you jump to the conclusion that 8107 is the perfect buying opportunity, it is important to realise that our conclusion rests on two assertions. The first is that our “similar companies” are actually similar to 8107, or else the difference in P/E might be a result of other factors. For example, if you compared lower risk firms with 8107, then investors would naturally value it at a lower price since it is a riskier investment. The second assumption that must hold true is that the stocks we are comparing 8107 to are fairly valued by the market. If this does not hold, there is a possibility that 8107’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

If your personal research into the stock confirms what the P/E ratio is telling you, it might be a good time to add more of 8107 to your portfolio. But keep in mind that the usefulness of relative valuation depends on whether you are comfortable with making the assumptions I mentioned above. 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:

  1. Future Outlook: What are well-informed industry analysts predicting for 8107’s future growth? Take a look at our free research report of analyst consensus for 8107’s outlook.

  2. Financial Health: Is 8107’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

  3. 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.