This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll look at Left Field Printing Group Limited's (HKG:1540) P/E ratio and reflect on what it tells us about the company's share price. Looking at earnings over the last twelve months, Left Field Printing Group has a P/E ratio of 7.96. That is equivalent to an earnings yield of about 12.6%.

View our latest analysis for Left Field Printing Group

How Do You Calculate A P/E Ratio?

The formula for price to earnings is:

Price to Earnings Ratio = Share Price (in reporting currency) ÷ Earnings per Share (EPS)

Or for Left Field Printing Group:

P/E of 7.96 = A$0.094 ÷ A$0.012 (Based on the year to December 2019.)

(Note: the above calculation uses the share price in the reporting currency, namely AUD and the calculation results may not be precise due to rounding.)

Is A High Price-to-Earnings Ratio Good?

A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That isn't necessarily good or bad, but a high P/E implies relatively high expectations of what a company can achieve in the future.

How Does Left Field Printing Group's P/E Ratio Compare To Its Peers?

The P/E ratio indicates whether the market has higher or lower expectations of a company. The image below shows that Left Field Printing Group has a lower P/E than the average (10.7) P/E for companies in the commercial services industry.

Its relatively low P/E ratio indicates that Left Field Printing Group shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with Left Field Printing Group, it's quite possible it could surprise on the upside. 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 company's P/E multiple. Earnings growth means that in the future the 'E' will be higher. And in that case, the P/E ratio itself will drop rather quickly. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.

Left Field Printing Group's earnings per share fell by 32% in the last twelve months.

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. In other words, it does not consider any debt or cash that the company may have on the balance sheet. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.