First of all, what is P/E? P/E stands for price-earnings. A P/E ratio is used to judge the value of a stock. It is calculated by dividing the share price with earnings per share. In its simplest and crudest interpretation, a low P/E ratio means that the stock is cheap and vice versa.
The following definition is quoted from Investopedia:
“The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio is also sometimes known as the price multiple or the earnings multiple.
(Investopedia Definition Link)”
Historical P/E ratio of Malaysia market
Why do I want to show you the P/E ratio of the market? What does the past have to do with the present and future? Because only by looking at the past, we can get a glimpse at what the future holds. I am not saying that the history will definitely repeat itself but at least, we have some data as a guide.
So after some googling, I found the following data from CEIC Data website (Link). It states that Malaysia’s FTSE Composite Index reached an all-time high of 21.03 in Jan 2010 and a record low of 13.22 in Sep 2011. The data was collected since 2009. The ratio is claimed to be provided monthly by Bursa Malaysia. Nonetheless, I could not get the data from Bursa Malaysia website. Not sure if there is some hidden link though.
Back to the main point, the historical P/E ratio ranges from 13.22 to 21.03. How were these values calculated? First, this P/E ratio does not take into account all companies in Bursa Malaysia. Instead, it uses FTSE Bursa Malaysia KLCI Index – Kuala Lumpur Composite Index (FBMKLCI) to represent the Malaysia market. This index includes 30 companies with largest market capitalization in Bursa Malaysia. What does this mean? It means that this ratio might not represent the whole Malaysian market. However, this is the closest data that we could get our hands on.
The P/E ratio range means that stock market as a whole is cheapest when P/E ratio is around 13 while it is most expensive when the ratio is around 21. Normally, the market P/E ratio fluctuates within 13 to 21. From this information, I would surmise that the market is fairly valued when P/E is around 17 (average of 13 and 21). How do we make use of this information?
Application
Let’s say we are evaluating a company and its share is selling at a P/E ratio of 12. Based on the data above, it can be considered as cheap (because P/E ratio is less than 17). So we should buy the stock now, right? No. Remember that the P/E ratio from CEIC is for the market as a whole (and honestly should only be valid for the 30 companies in FBMKLCI). Before we invest in a stock, we should look at its own P/E ratio throughout the years. Let’s say for the abovementioned stock, it ranges from 6 to 9 for the last 5 years. Will you still think it is cheap now?
Nevertheless, we should never use P/E ratio alone as the sole determinant of a trading decision. A low P/E ratio does not necessarily mean that it is a cheap stock. Some stocks are cheap because their fundamentals are bad. In a similar vein, we cannot classify all stocks with high P/E ratio as expensive. Sometimes it can be due to the fact that the company has a high growth potential and it might give you tremendous returns.
In conclusion, P/E ratio helps to evaluate the value of a stock but remember this is not a magic ratio in our investing journey.
Comments
Dear Leckas,
Thanks for writing on PE, I have now a deeper understanding on the subject after reading the above.
Are you able to enlighten me as to where I am able to get the historical PE of malaysia listed companies, lets say over the past 10 years?
Author
Hi, Moo.
I am glad that I am able to help you to learn something.
Unfortunately, I do not have a ready source for the historical P/E ratio of listed companies in Malaysia. I calculated the P/E ratios on my own. It does take a bit of hard work but it is feasible as long as the historical share prices and earnings can be traced. My source for EPS is the annual reports of the company while I get the historical share prices from finance sites such as Yahoo Finance Singapore and investor.com.
Hi Good Day, wondering where can download the passed listed company annual report? Or any link can get the historical P/E ratio for pass 5 years. TQ
Author
Hi, CS.
You can go to Bursa Malaysia website, specifically this page (Link) to download the annual reports of the listed companies. Just make sure you select Annual Report for the Category field.
I am not sure where we can get historical P/E ratio, thus I do it on my own for the companies that I am interested.
Hope this helps.
Thanks Leckas🙏
Hi Leckas, last question to check with you. How to check the average share price on passed annual report what is the other way to calculate out. Bcos the P/E ration, it won’t direct to show us in the report. PE= Share Price/ EPS.
I able to get the EPS reading on report frm 2018-2021. How you insert the (Share price) from the annual report? Many Thanks for ur guidance. TQ
Author
Hi, CS.
I normally use i3investor.com (Link) to get the historical share price. Find the stock that you are interested and go to Prices then select Stock Chart. But it will only show you the share prices of the previous five years (maximum). You may also try Investing.com (Link) if you want to get the share prices of longer period.
After that, you have to calculate the average share price manually by averaging the highest and lowest share price of that year.
Hope this helps. By the way, which stock are you looking at?
Many Thanks! Affin & Sunway
Author
You are welcome. I did not cover these two companies in my blog before, so can’t give you more information. Hope that you will find what you are looking for. Good luck!
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