Do You Like SK Telecom Co.,Ltd (KRX:017670) At This P/E Ratio?

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 SK Telecom Co.,Ltd's (KRX:017670) P/E ratio to inform your assessment of the investment opportunity. SK TelecomLtd has a price to earnings ratio of 14.41, based on the last twelve months. That means that at current prices, buyers pay ₩14.41 for every ₩1 in trailing yearly profits.

See our latest analysis for SK TelecomLtd

How Do You Calculate SK TelecomLtd's P/E Ratio?

The formula for price to earnings is:

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

Or for SK TelecomLtd:

P/E of 14.41 = ₩175000.000 ÷ ₩12144.000 (Based on the trailing twelve months to December 2019.)

(Note: the above calculation results may not be precise due to rounding.)

Is A High Price-to-Earnings Ratio Good?

A higher P/E ratio means that investors are paying a higher price for each ₩1 of company 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 Does SK TelecomLtd's P/E Ratio Compare To Its Peers?

The P/E ratio indicates whether the market has higher or lower expectations of a company. As you can see below SK TelecomLtd has a P/E ratio that is fairly close for the average for the wireless telecom industry, which is 14.8.

Its P/E ratio suggests that SK TelecomLtd shareholders think that in the future it will perform about the same as other companies in its industry classification. If the company has better than average prospects, then the market might be underestimating it. Checking factors such as director buying and selling. could help you form your own view on if that will happen.

How Growth Rates Impact P/E Ratios

If earnings fall then in the future the 'E' will be lower. That means unless the share price falls, the P/E will increase in a few years. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.

SK TelecomLtd shrunk earnings per share by 72% over the last year. And over the longer term (5 years) earnings per share have decreased 14% annually. This might lead to muted expectations.

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

Don't forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

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).

How Does SK TelecomLtd's Debt Impact Its P/E Ratio?

Net debt totals 62% of SK TelecomLtd's market cap. This is a reasonably significant level of debt -- all else being equal you'd expect a much lower P/E than if it had net cash.

The Bottom Line On SK TelecomLtd's P/E Ratio

SK TelecomLtd's P/E is 14.4 which is above average (9.8) in its market. With significant debt and no EPS growth last year, shareholders are betting on an improvement in earnings from the company.

Investors have an opportunity when market expectations about a stock are wrong. 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 find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.

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.

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. Thank you for reading.