A company is earning 40 cents per share and is trading at $6.00. From there I get the P/E ratio to be 15. It does not have much growth potential and it's earnings are relatively stable and has been around 40 cents per share yearly and trading about $6 for sometime. Most of it's peers are trading at around a P/E ratio of 15.
They don't have any debt and their (hidden) assets/lands are valued at about $5 per share.
So I'm just wondering if the P/E ratio of 15 is really a good indicator of the share price? Because if you take into consideration the assets/lands then the share price should be about $11? Then the P/E ratio would be 11/0.4 = 27.5?
So when deciding whether or not to purchase the stock at $6, I get the P/E ratio to be 15, but assuming the share price goes up to $11 after the market factors in all their assets, the P/E ratio will be 27.5 (and earnings per share stays constant at 0.4), but will this share price be considered high because the P/E is 27.5, or can it be considered a fair/reasonable price? Because my thinking is I'm buying the assets/lands, in addition to earnings per share, is that correct logic? And would it really be waiting for 27.5 years before getting all my returns on investment back?
In other words, if a stock has say relatively low earnings per share, but it's assets are worth alot of money, and say the stock price goes high to reflect the assets real worth, the P/E ratio will be high. Will it be risky/worth it to invest in this stock if the assets are very highly valued as reflected in the share price, but earnings per share are low, thus giving a high P/E ratio?
Lets say this manufacturing company has no debt, and has a plant that is worth $5 per share, and I know this plant is really worth $5 per share and is not undervalued/overvalued in the accounting statements. It's earning per share is constantly 40 cents per share and the share price is $5. So the P/E ratio would be 12.5, but is the P/E ratio "really" 12.5? If I buy the stock at $5, I'm essentially just buying the plant at $5 per share and getting the earnings for free? Is it worth it to purchase this stock?