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Should You Sell Low Keng Huat (Singapore) Limited (SGX:F1E) At This PE Ratio?

This article is intended for those of you who are at the beginning of your investing journey and want to better understand how you can grow your money by investing in Low Keng Huat (Singapore) Limited (SGX:F1E).

Low Keng Huat (Singapore) Limited (SGX:F1E) is trading with a trailing P/E of 24.6x, which is higher than the industry average of 12.4x. While this makes F1E appear like a stock to avoid or sell if you own it, you might change your mind after I explain the assumptions behind the P/E ratio. In this article, I will deconstruct the P/E ratio and highlight what you need to be careful of when using the P/E ratio. See our latest analysis for Low Keng Huat (Singapore)

What you need to know about the P/E ratio

SGX:F1E PE PEG Gauge June 25th 18
SGX:F1E PE PEG Gauge June 25th 18

P/E is often used for relative valuation since earnings power is a chief driver of investment value. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.

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P/E Calculation for F1E

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

F1E Price-Earnings Ratio = SGD0.61 ÷ SGD0.0248 = 24.6x

The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful when you compare it with other similar companies. We want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as F1E, such as size and country of operation. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. F1E’s P/E of 24.6x is higher than its industry peers (12.4x), which implies that each dollar of F1E’s earnings is being overvalued by investors. As such, our analysis shows that F1E represents an over-priced stock.

Assumptions to watch out for

While our conclusion might prompt you to sell your F1E shares immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to F1E. 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 F1E, 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 F1E to are fairly valued by the market. If this does not hold, there is a possibility that F1E’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

You may have already conducted fundamental analysis on the stock as a shareholder, so its current overvaluation could signal a potential selling opportunity to reduce your exposure to F1E. 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. Future Outlook: What are well-informed industry analysts predicting for F1E’s future growth? Take a look at our free research report of analyst consensus for F1E’s outlook.

  2. Past Track Record: Has F1E 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 F1E’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.