PE ratio is a figure used to assess the value of a company, and also used to compare the value of one company to another peer company to show which company has a lower valuation, hence a lower risk and higher return shall be achieved. PE ratio is obtained by dividing the share price with its Earning per Share (EPS). When comparing PE ratio between companies, a higher PE ratio means the company is overvalued, hence higher risk is to invest in this company.
As we can see the PE ratio for both CAREPLS and COMFORT, where it is 25 and 32, respectively. This means that in gloves manufacturing business, COMFORT is slightly overvalue as compared to CAREPLS, which means investors may face a higher risk when investing in COMFORT.
There are two ways to change a company’s PE ratio, which is the price fluctuation that occurs every day, and the EPS change that occurs every quarter (3 months). Once the company earn more in the coming quarter, the PE ratio will be reduced, hence becoming more reasonable.
Besides, when a company possesses a higher PE ratio means that most investors are having a more optimistic view towards their future, that they will earn more in the future. For example, technology companies listed under Bursa are having 40-60 of PE ratio, meaning most investors are looking forward their future business, rather than only focusing on their current value.
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