Yahoo Finance Is ValueMax Group Limited (SGX:T6I) A Buy At Its Current PE Ratio?
ValueMax Group Limited (SGX:T6I) is currently trading at a trailing P/E of 7.7x, which is lower than the industry average of 16.7x. While T6I 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. See our latest analysis for ValueMax Group
Breaking down the Price-Earnings ratio
The P/E ratio is one of many ratios used in 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.
P/E Calculation for T6I
Price-Earnings Ratio = Price per share ÷ Earnings per share
T6I Price-Earnings Ratio = SGD0.3 ÷ SGD0.038 = 7.7x
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. We preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to T6I, such as capital structure and profitability. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. Since T6I’s P/E of 7.7x is lower than its industry peers (16.7x), it means that investors are paying less than they should for each dollar of T6I’s earnings. As such, our analysis shows that T6I represents an under-priced stock.
A few caveats
While our conclusion might prompt you to buy T6I immediately, there are two important assumptions you should be aware of. The first is that our “similar companies” are actually similar to T6I, or else the difference in P/E might be a result of other factors. For example, if you compared lower risk firms with T6I, then investors would naturally value it at a lower price since it is a riskier investment. The second assumption that must hold true is that the stocks we are comparing T6I to are fairly valued by the market. If this is violated, T6I’s P/E may be lower than its peers as they are actually overvalued by investors.
What this means for you:
Since you may have already conducted your due diligence on T6I, 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:
Financial Health: Is T6I’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.
Past Track Record: Has T6I 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 T6I’s historicals for more clarity.
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.
