# Why Meilleure Health International Industry Group Limited’s (HKG:2327) High P/E Ratio Isn’t Necessarily A Bad Thing

This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We’ll show how you can use Meilleure Health International Industry Group Limited’s (HKG:2327) P/E ratio to inform your assessment of the investment opportunity. Meilleure Health International Industry Group has a P/E ratio of 52.97, based on the last twelve months. That means that at current prices, buyers pay HK\$52.97 for every HK\$1 in trailing yearly profits.

### How Do You Calculate A P/E Ratio?

The formula for P/E is:

Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)

Or for Meilleure Health International Industry Group:

P/E of 52.97 = HK\$1.14 ÷ HK\$0.022 (Based on the year to December 2018.)

### Is A High P/E Ratio Good?

The higher the P/E ratio, the higher the price tag of a business, relative to its trailing earnings. All else being equal, it’s better to pay a low price — but as Warren Buffett said, ‘It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.’

### How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates. That’s because companies that grow earnings per share quickly will rapidly increase the ‘E’ in the equation. That means unless the share price increases, the P/E will reduce in a few years. Then, a lower P/E should attract more buyers, pushing the share price up.

Meilleure Health International Industry Group’s earnings per share fell by 10% in the last twelve months. But EPS is up 61% over the last 3 years. And over the longer term (5 years) earnings per share have decreased 17% annually. This could justify a pessimistic P/E.

### How Does Meilleure Health International Industry Group’s P/E Ratio Compare To Its Peers?

We can get an indication of market expectations by looking at the P/E ratio. As you can see below, Meilleure Health International Industry Group has a much higher P/E than the average company (14.4) in the trade distributors industry.

Meilleure Health International Industry Group’s P/E tells us that market participants think the company will perform better than its industry peers, going forward. The market is optimistic about the future, but that doesn’t guarantee future growth. So further research is always essential. I often monitor director buying and selling.

### Don’t Forget: The P/E Does Not Account For Debt or Bank Deposits

The ‘Price’ in P/E reflects the market capitalization of the company. Thus, the metric does not reflect cash or debt held by the company. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).

Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).

### Meilleure Health International Industry Group’s Balance Sheet

Net debt totals just 1.2% of Meilleure Health International Industry Group’s market cap. It would probably trade on a higher P/E ratio if it had a lot of cash, but I doubt it is having a big impact.

### The Verdict On Meilleure Health International Industry Group’s P/E Ratio

Meilleure Health International Industry Group’s P/E is 53 which suggests the market is more focussed on the future opportunity rather than the current level of earnings. With modest debt but no EPS growth in the last year, it’s fair to say the P/E implies some optimism about future earnings, from the market.

Investors should be looking to buy stocks that the market is wrong about. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. So this free visualization of the analyst consensus on future earnings could help you make the right decision about whether to buy, sell, or hold.

Of course you might be able to find a better stock than Meilleure Health International Industry Group. So you may wish to see this free collection of other companies that have grown earnings strongly.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.