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Is UOL Group Limited (SGX:U14) A Buy At Its Current PE Ratio?

This analysis is intended to introduce important early concepts to people who are starting to invest and want to better understand how you can grow your money by investing in UOL Group Limited (SGX:U14).

UOL Group Limited (SGX:U14) is trading with a trailing P/E of 7.1x, which is lower than the industry average of 9.5x. 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 explain what the P/E ratio is as well as what you should look out for when using it. Check out our latest analysis for UOL Group

Breaking down the Price-Earnings ratio

SGX:U14 PE PEG Gauge June 22nd 18
SGX:U14 PE PEG Gauge June 22nd 18

A common ratio used for relative valuation is the P/E ratio. 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 U14

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

U14 Price-Earnings Ratio = SGD7.57 ÷ SGD1.068 = 7.1x

The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. We want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as U14, such as size and country of operation. A common peer group is companies that exist in the same industry, which is what I use. Since U14’s P/E of 7.1x is lower than its industry peers (9.5x), it means that investors are paying less than they should for each dollar of U14’s earnings. Therefore, according to this analysis, U14 is an under-priced stock.

A few caveats

While our conclusion might prompt you to buy U14 immediately, there are two important assumptions you should be aware of. The first is that our “similar companies” are actually similar to U14, or else the difference in P/E might be a result of other factors. For example, if you are comparing lower risk firms with U14, 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 U14 to are fairly valued by the market. If this does not hold true, U14’s lower P/E ratio may be because firms in our peer group are overvalued by the market.

What this means for you:

Since you may have already conducted your due diligence on U14, 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 U14’s future growth? Take a look at our free research report of analyst consensus for U14’s outlook.

  2. Past Track Record: Has U14 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 U14’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.