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This article is for investors who would like to improve their understanding of price to earnings ratios (P/E ratios). We'll show how you can use Asia Allied Infrastructure Holdings Limited's (HKG:711) P/E ratio to inform your assessment of the investment opportunity. Looking at earnings over the last twelve months, Asia Allied Infrastructure Holdings has a P/E ratio of 9.33. That corresponds to an earnings yield of approximately 10.7%.
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That isn't a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business's prospects, relative to stocks with a lower P/E.
The P/E ratio indicates whether the market has higher or lower expectations of a company. The image below shows that Asia Allied Infrastructure Holdings has a higher P/E than the average (7.9) P/E for companies in the construction industry.
That means that the market expects Asia Allied Infrastructure Holdings will outperform other companies in its industry. Shareholders are clearly optimistic, but the future is always uncertain. So further research is always essential. I often monitor director buying and selling.
If earnings fall then in the future the 'E' will be lower. That means even if the current P/E is low, it will increase over time if the share price stays flat. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.
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