Yahoo Finance Read This Before You Buy Wynn Macau, Limited (HKG:1128) Because Of Its P/E Ratio
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This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We'll show how you can use Wynn Macau, Limited's (HKG:1128) P/E ratio to inform your assessment of the investment opportunity. Based on the last twelve months, Wynn Macau's P/E ratio is 15.42. That means that at current prices, buyers pay HK$15.42 for every HK$1 in trailing yearly profits.
View our latest analysis for Wynn Macau
How Do I Calculate Wynn Macau's Price To Earnings Ratio?
The formula for P/E is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Wynn Macau:
P/E of 15.42 = HK$18.5 ÷ HK$1.2 (Based on the year to December 2018.)
Is A High P/E Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each HK$1 of company earnings. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. 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. Then, a lower P/E should attract more buyers, pushing the share price up.
Notably, Wynn Macau grew EPS by a whopping 68% in the last year. And it has improved its earnings per share by 43% per year over the last three years. So we'd generally expect it to have a relatively high P/E ratio. But earnings per share are down 13% per year over the last five years.
How Does Wynn Macau's P/E Ratio Compare To Its Peers?
The P/E ratio indicates whether the market has higher or lower expectations of a company. As you can see below Wynn Macau has a P/E ratio that is fairly close for the average for the hospitality industry, which is 15.5.
Its P/E ratio suggests that Wynn Macau shareholders think that in the future it will perform about the same as other companies in its industry classification. If the company has better than average prospects, then the market might be underestimating it. Checking factors such as the tenure of the board and management could help you form your own view on if that will happen.
Remember: P/E Ratios Don't Consider The Balance Sheet
The 'Price' in P/E reflects the market capitalization of the company. That means it doesn't take debt or cash into account. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).
How Does Wynn Macau's Debt Impact Its P/E Ratio?
Wynn Macau has net debt worth 25% of its market capitalization. That's enough debt to impact the P/E ratio a little; so keep it in mind if you're comparing it to companies without debt.
The Verdict On Wynn Macau's P/E Ratio
Wynn Macau's P/E is 15.4 which is above average (11.8) in the HK market. The company is not overly constrained by its modest debt levels, and it is growing earnings per share. So it is not surprising the market is probably extrapolating recent growth well into the future, reflected in the relatively high P/E ratio.
Investors should be looking to buy stocks that the market is wrong about. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.
But note: Wynn Macau may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).
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.
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. Thank you for reading.
