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Does RH PetroGas Limited’s (SGX:T13) PE Ratio Signal A Buying Opportunity?

RH PetroGas Limited (SGX:T13) trades with a trailing P/E of 3.5x, which is lower than the industry average of 10.6x. While T13 might seem like an attractive stock to buy, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. Today, 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 RH PetroGas

Breaking down the P/E ratio

SGX:T13 PE PEG Gauge Jun 21st 18
SGX:T13 PE PEG Gauge Jun 21st 18

P/E is often used for relative valuation since earnings power is a chief driver of investment value. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.

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P/E Calculation for T13

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

T13 Price-Earnings Ratio = $0.05 ÷ $0.014 = 3.5x

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. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to T13, such as company lifetime and products sold. A common peer group is companies that exist in the same industry, which is what I use. T13’s P/E of 3.5x is lower than its industry peers (10.6x), which implies that each dollar of T13’s earnings is being undervalued by investors. Therefore, according to this analysis, T13 is an under-priced stock.

Assumptions to be aware of

However, before you rush out to buy T13, it is important to note that this conclusion is based on two key assumptions. Firstly, our peer group contains companies that are similar to T13. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared higher growth firms with T13, then its P/E would naturally be lower since investors would reward its peers’ higher growth with a higher price. The second assumption that must hold true is that the stocks we are comparing T13 to are fairly valued by the market. If this is violated, T13’s P/E may be lower than its peers as they are actually overvalued by investors.

What this means for you:

You may have already conducted fundamental analysis on the stock as a shareholder, so its current undervaluation could signal a good buying opportunity to increase your exposure to T13. Now that you understand the ins and outs of the PE metric, you should know to bear in mind its limitations before you make an investment decision. 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 highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Is T13’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.

  2. Past Track Record: Has T13 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of T13’s historicals for more clarity.

  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.