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Should You Be Tempted To Buy Luxking Group Holdings Limited (SGX:BKK) At Its Current PE Ratio?

I am writing today to help inform people who are new to the stock market and want to better understand how you can grow your money by investing in Luxking Group Holdings Limited (SGX:BKK).

Luxking Group Holdings Limited (SGX:BKK) is trading with a trailing P/E of 4.5x, which is lower than the industry average of 11.3x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind. Today, I will deconstruct the P/E ratio and highlight what you need to be careful of when using the P/E ratio. View out our latest analysis for Luxking Group Holdings

What you need to know about the P/E ratio

SGX:BKK PE PEG Gauge June 27th 18
SGX:BKK PE PEG Gauge June 27th 18

P/E is a popular ratio used for relative valuation. 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 BKK

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

BKK Price-Earnings Ratio = CN¥1.44 ÷ CN¥0.322 = 4.5x

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 preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to BKK, such as capital structure and profitability. One way of gathering a peer group is to use firms in the same industry, which is what I’ll do. Since BKK’s P/E of 4.5x is lower than its industry peers (11.3x), it means that investors are paying less than they should for each dollar of BKK’s earnings. As such, our analysis shows that BKK represents an under-priced stock.

Assumptions to be aware of

While our conclusion might prompt you to buy BKK immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to BKK. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you are comparing lower risk firms with BKK, then its P/E would naturally be lower than its peers, as investors would value those with lower risk at a higher price. The second assumption that must hold true is that the stocks we are comparing BKK to are fairly valued by the market. If this does not hold, there is a possibility that BKK’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

Since you may have already conducted your due diligence on BKK, the undervaluation of the stock may mean it is a good time to top up on your current holdings. But at the end of the day, keep in mind that relative valuation relies heavily on critical assumptions I’ve outlined above. 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 BKK’s future growth? Take a look at our free research report of analyst consensus for BKK’s outlook.

  2. Past Track Record: Has BKK 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 BKK’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.