What Is Hyfusin Group Holdings's (HKG:8512) P/E Ratio After Its Share Price Tanked?

To the annoyance of some shareholders, Hyfusin Group Holdings (HKG:8512) shares are down a considerable 31% in the last month. That drop has capped off a tough year for shareholders, with the share price down 57% in that time.

Assuming nothing else has changed, a lower share price makes a stock more 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). The implication here is that long term investors have an opportunity when expectations of a company are too low. 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 Hyfusin Group Holdings

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

We can tell from its P/E ratio of 1.96 that sentiment around Hyfusin Group Holdings isn't particularly high. The image below shows that Hyfusin Group Holdings has a lower P/E than the average (17.6) P/E for companies in the household products industry.

Hyfusin Group Holdings'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

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 unless the share price increases, the P/E will reduce in a few years. And as that P/E ratio drops, the company will look cheap, unless its share price increases.

Hyfusin Group Holdings's earnings made like a rocket, taking off 346% last year. Even better, EPS is up 22% 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 company may have on the balance sheet. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

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 Hyfusin Group Holdings's Debt Impact Its P/E Ratio?

Net debt is 29% of Hyfusin Group Holdings's market cap. While it's worth keeping this in mind, it isn't a worry.

The Bottom Line On Hyfusin Group Holdings's P/E Ratio

Hyfusin Group Holdings's P/E is 2.0 which is below average (9.0) in the HK market. The company does have a little debt, and EPS growth was good last year. If the company can continue to grow earnings, then the current P/E may be unjustifiably low. Given Hyfusin Group Holdings's P/E ratio has declined from 2.9 to 2.0 in the last month, we know for sure that the market is more worried about the business today, than it was back then. For those who prefer invest in growth, this stock apparently offers limited promise, but the deep value investors may find the pessimism around this stock enticing.

Investors have an opportunity when market expectations about a stock are wrong. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. Although we don't have analyst forecasts you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

Of course you might be able to find a better stock than Hyfusin Group 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.