Stock metrics analysis

Analyse a stock using PE, PB, dividend yield, ROE, and growth  

1. PE ratio: “How much am I paying for earnings?”

PE = Share Price ÷ Earnings Per Share

Example:
If a stock is $100 and EPS is $5, PE = 20x.
This means investors are paying $20 for every $1 of annual profit.

How to read PE

PE level	Meaning
Low PE	Could be cheap, or business is weak
High PE	Could be expensive, or business is high quality / growing fast
Falling PE	Could mean stock is cheaper, or earnings are falling
Rising PE	Could mean optimism, or overvaluation

PE is useful for:

Good for: profitable companies, banks, consumer stocks, mature tech, industrials.
Less useful for: loss-making companies, early-stage growth companies, cyclical stocks at peak earnings.

Simple PE rule

A stock may be undervalued if:

• PE is below its own 5–10 year average
• PE is below peers
• Earnings are stable or growing
• Business quality has not worsened

A stock may be overvalued if:

• PE is far above history
• Earnings growth is slowing
• Market is assuming perfection
• PE expanded more than profit growth

2. PB ratio: “How much am I paying for the company’s net assets?”

PB = Share Price ÷ Book Value Per Share

Book value roughly means assets minus liabilities.

PB is especially useful for banks, insurers, REITs, and asset-heavy businesses.

How to read PB

PB level	Meaning
Below 1x	Market values company below book value
Around 1x	Market values company close to net assets
Above 1x	Market is paying premium for quality/profitability
Very high PB	Could be expensive unless ROE is very high

PB is useful for:

Good for: banks like DBS, OCBC, UOB; insurers; REITs; property companies.
Less useful for: Apple, Microsoft, Google, Meta, asset-light tech companies.

For tech companies, book value is often not very meaningful because their real value is in brand, software, ecosystem, data, patents, and customer relationships, not physical assets.

3. PB must be compared with ROE

This is very important.

ROE = Net Profit ÷ Shareholders’ Equity

ROE tells you how well the company uses its book value to generate profit.

For banks:

ROE	Fair PB range, rough guide
6%–8% ROE	0.6x–0.9x PB
9%–11% ROE	0.9x–1.2x PB
12%–14% ROE	1.2x–1.5x PB
15%–18% ROE	1.5x–2.0x PB
Above 18% ROE	Can justify above 2.0x PB

So a bank at 1.8x PB is not automatically expensive if ROE is very high.

But if ROE is only 10%, then 1.8x PB is likely expensive.

4. Dividend yield: useful for banks and REITs

Dividend Yield = Dividend Per Share ÷ Share Price

If DBS pays $2.16 dividend and share price is $43:

Dividend yield = 5.0%

How to read dividend yield

Dividend yield	Meaning
Higher than history	Could be undervalued, or dividend at risk
Lower than history	Could be overvalued, or business quality improved
Very high yield	Warning sign unless cash flow is safe

For Singapore banks and REITs, dividend yield is useful because investors often buy them for income.

5. The most important method: compare against history

Do not ask, “Is PE 20 cheap?”

Ask:

“Is PE 20 cheap for this specific company?”

Example:

Company	Normal PE	Current PE	Possible meaning
Apple	20x–30x	28x	Fair to expensive
DBS	9x–13x	11x	Fair
Sembcorp	8x–14x	10x	Possibly fair
REIT	PE less useful	Use yield / PB / DPU	Better

A PE of 15x may be expensive for a slow-growth bank, but cheap for a company growing earnings 15%–20% per year.

6. Compare against growth

A high PE is acceptable only if future growth is strong.

Simple guide:

Earnings growth	Reasonable PE
0%–3% growth	8x–12x
4%–7% growth	12x–18x
8%–12% growth	18x–25x
13%–20% growth	25x–40x
Above 20% growth	Can justify very high PE, but riskier

So for IBKR, if PE is high, the question is:

Can earnings and client assets keep growing fast enough to justify that PE?

If yes, hold.
If no, valuation is risky.

7. My practical valuation checklist

When checking if a stock is undervalued or overvalued, use this order:

Step 1: Identify the business type

Business type	Best valuation metrics
Banks	PB, ROE, PE, dividend yield
REITs	Dividend yield, PB, DPU growth, gearing
Tech	PE, free cash flow yield, revenue growth, margins
Cyclical stocks	PB, EV/EBITDA, cycle position
Consumer stocks	PE, earnings growth, margins, dividend yield
Brokers like IBKR	PE, earnings growth, client accounts, client equity, net interest income

8. How to decide buy / hold / sell

Undervalued

Stock may be undervalued when:

• PE/PB is below its historical average
• Dividend yield is above normal
• Earnings are stable or improving
• ROE is stable or improving
• Bad news is temporary, not structural

Action: Buy in tranches

Fair value

Stock may be fairly valued when:

• PE/PB is near historical average
• Growth is normal
• Dividend yield is normal
• No major thesis change

Action: Hold / add slowly

Overvalued

Stock may be overvalued when:

• PE/PB is much higher than history
• Growth is slowing
• Dividend yield is very low versus history
• Market expectations are too optimistic
• Earnings disappoint but valuation stays high

Action: Hold, stop adding, or trim

9. Simple example: Singapore bank

Suppose a bank has:

• PE: 12x
• PB: 1.6x
• ROE: 15%
• Dividend yield: 5%
• Earnings stable

This is probably fair to slightly expensive, not crazy expensive, because the ROE is strong.

But if the same bank has:

• PE: 14x
• PB: 2.0x
• ROE falling from 17% to 12%
• Dividend yield falling to 3.5%

Then it may be overvalued.

10. Simple example: IBKR

For IBKR, PB is less useful. Use:

• PE
• earnings growth
• client accounts growth
• client equity growth
• daily average revenue trades
• net interest income
• margin loans
• operating margin

IBKR can deserve a high PE if:

• client accounts keep growing 20%–30%
• client assets keep rising
• margin loans grow
• trading activity stays healthy
• net interest income remains strong

But IBKR becomes risky if:

• PE is high
• interest rates fall sharply
• trading activity slows
• margin loans decline
• client growth slows
• earnings stop growing

My simple rule for you

Use this:

PE tells you how expensive earnings are.
PB tells you how expensive assets are.
ROE tells you whether high PB is justified.
Dividend yield tells you whether income stocks are cheap or expensive.
Growth tells you whether high PE is justified.

For your stocks:

Stock type	Main metrics to use
DBS / OCBC / UOB	PB + ROE + PE + dividend yield
Mapletree REITs	Dividend yield + PB + DPU + gearing
Apple / Microsoft / Google / Meta	PE + free cash flow + growth
IBKR	PE + growth + client metrics + net interest income
Yangzijiang / Sembcorp	PE + order book + cycle + margins
Sheng Siong	PE + margins + same-store sales + dividend yield