What Is Byleasing Holdings's (HKG:8525) P/E Ratio After Its Share Price Rocketed?

·4-min read

Byleasing Holdings (HKG:8525) shares have continued recent momentum with a 104% gain in the last month alone. That brought the twelve month gain to a very sharp 68%.

Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

See our latest analysis for Byleasing Holdings

Does Byleasing Holdings Have A Relatively High Or Low P/E For Its Industry?

Byleasing Holdings's P/E of 12.78 indicates some degree of optimism towards the stock. You can see in the image below that the average P/E (7.6) for companies in the diversified financial industry is lower than Byleasing Holdings's P/E.

SEHK:8525 Price Estimation Relative to Market, March 11th 2020
SEHK:8525 Price Estimation Relative to Market, March 11th 2020

Its relatively high P/E ratio indicates that Byleasing Holdings shareholders think it will perform better than other companies in its industry classification. Shareholders are clearly optimistic, but the future is always uncertain. So investors should always consider the P/E ratio alongside other factors, such as whether company directors have been buying shares.

How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates. 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.

Byleasing Holdings shrunk earnings per share by 37% over the last year.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank

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.

Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.

Is Debt Impacting Byleasing Holdings's P/E?

Byleasing Holdings's net debt equates to 45% of its market capitalization. While it's worth keeping this in mind, it isn't a worry.

The Bottom Line On Byleasing Holdings's P/E Ratio

Byleasing Holdings trades on a P/E ratio of 12.8, which is above its market average of 9.4. With some debt but no EPS growth last year, the market has high expectations of future profits. What is very clear is that the market has become significantly more optimistic about Byleasing Holdings over the last month, with the P/E ratio rising from 6.3 back then to 12.8 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. Although we don't have analyst forecasts you might want to assess this data-rich visualization of earnings, revenue and cash flow.

You might be able to find a better buy than Byleasing Holdings. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

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.

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