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P/E ratio, or price-to-earnings ratio, is a quick way to evaluate stocks. A good P/E ratio depends on the sector, but generally the lower, the better. ...
- Value Investors
Value investing means looking for stock that is trading for...
- Fundamentals
Fundamental analysis is a type of securities analysis that...
- Earnings Per Share
Earnings per share is a key statistic in financial analysis...
- Dividend Investing
Dividend investing lets you profit when the companies whose...
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Exchange-traded funds are traded like stocks and track a...
- Value Investors
- What Is The Price-To-Earnings (P/E) Ratio?
- Understanding The P/E Ratio
- P/E Ratio Formula and Calculation
- Forward Price-To-Earnings
- Trailing Price-To-Earnings
- Valuation from P/E
- Examples of The P/E Ratio
- Investor Expectations
- P/E vs. Earnings Yield
- P/E vs. Peg Ratio
The price-to-earnings (P/E) ratio measures a company's share price relative to its earnings per share (EPS). Often called the price or earnings multiple, the P/E ratio helps assess the relative value of a company's stock. It's handy for comparing a company's valuation against its historical performance, against other firms within its industry, or t...
The P/E ratio is one of the most widely used by investors and analysts reviewing a stock's relative valuation. It helps to determine whether a stock is overvalued or undervalued. A company's P/E can also be benchmarked against other stocks in the same industry or against the broader market, such as the S&P 500 Index. Analysts interested in long-ter...
The formula and calculation are as follows: P/E Ratio=Market value per shareEarnings per share\text{P/E Ratio} = \frac{\text{Market value per share}}{\text{Earnings per share}}P/E Ratio=Earnings per shareMarket value per share To determine the P/E value, divide the stock price by the EPS. The stock price (P) can be found simply by searching a stoc...
The most commonly used P/E ratios are the forward P/Eand the trailing P/E. A third and less typical variation uses the sum of the last two actual quarters and the estimates of the following two quarters. The forward (or leading) P/E uses future earnings guidance rather than trailing figures. Sometimes called "estimated price to earnings," this forw...
The trailing P/E relies on past performance by dividing the current share price by the total EPS for the previous 12 months. It's the most popular P/E metric because it's thought to be objective—assuming the company reported earnings accurately. But the trailing P/E also has its share of shortcomings, including that a company’s past performance doe...
In addition to indicating whether a company’s stock price is overvalued or undervalued, the P/E ratio can reveal how a stock’s value compares with its industry or a benchmark like the S&P 500. The P/E ratio indicates the dollar amount an investor can expect to invest in a company to receive $1 of that company’s earnings. Hence, it’s sometimes calle...
Let's clarify this with an example, looking at FedEx Corporation (FDX). We can calculate the P/E ratio for FDX as of Feb. 9, 2024, when the company's stock price closed at $242.62. The company's earnings per share (EPS) for the trailing 12 months was $16.85. Therefore, FDX's P/E ratio was as follows:
In general, a high P/E suggests that investors expect higher earnings growth than those with a lower P/E. A low P/E can indicate that a company is undervalued or that a firm is doing exceptionally well relative to its past performance. When a company has no earnings or is posting losses, the P/E is expressed as N/A. Though it's possible to calculat...
The inverse of the P/E ratio is the earnings yield(which can be thought of as the earnings/price ratio). The earnings yield is the EPS divided by the stock price, expressed as a percentage. If Stock A is trading at $10, and its EPS for the past year is 50 cents (TTM), it has a P/E of 20 (i.e., $10 / 50 cents) and an earnings yield of 5% (50 cents /...
A P/E ratio, even one calculated using a forward earnings estimate, doesn’t always tell you whether the P/E is appropriate for the company’s expected growth rate. To address this, investors turn to the price/earnings-to-growth ratio, or PEG. The PEG ratio measures the relationship between the price/earnings ratio and earnings growth to give investo...
- Jason Fernando
- 1 min
Mar 12, 2019 · So a stock that is trading at 20X earnings (having a P/E ratio of 20) is, for example, a stock that's trading at $40 per share divided by its earnings per common share of $2. Tip. Divide a stock's ...
May 11, 2023 · The P/E ratio is a useful tool in valuation analysis as it helps us compare the relative valuation of a company and tells us the market’s expectations of future growth of a stock. However, the P/E ratio alone does not tell us whether a stock is over or undervalued. An investor must perform a discounted cash flow or some type of intrinsic ...
- A good P/E ratio is subjective and can vary depending on the industry and the growth prospects. Some industries have higher P/E ratios because the...
- A high P/E ratio may indicate that investors are optimistic about a company's future growth prospects. A high P/E for a company or industry may be...
- The P/E ratio is important because it is a simple tool that provides insight into a company's relative valuation and growth potential. It can also...
- A bad P/E ratio is subjective and will be different depending on the company and the industry it’s in. In general, a P/E ratio of a company that is...
- Tesla’s P/E is currently 47.5 while the industry average is 10.3. Tesla’s P/E multiple could be higher than its industry competitors due to several...
- A P/E ratio of 5 could be considered good or bad depending on the industry and the company’s growth prospects. For example, the industry average P/...
- Amazon's P/E ratio is higher than most companies in the retail industry because investors are optimistic about its future growth potential. As ment...
Calculation. Current stock price divided by the most recent four calendar quarters of earnings determines the P/E ratio. If stock is $60 and the company earned $3 per share over the past year, 60 divided by 3 shows the stock is trading at 20X earnings. Personal Finance.
P/E Ratio Example. If Stock A is trading at $30 and Stock B at $20, Stock A is not necessarily more expensive. The P/E ratio can help us determine, from a valuation perspective, which of the two is cheaper. If the sector’s average P/E is 15, Stock A has a P/E = 15 and Stock B has a P/E = 30, stock A is cheaper despite having a higher absolute ...
People also ask
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What is price earnings ratio (P/E ratio)?
The price-to-earnings (PE) ratio is the ratio between a company's stock price and earnings per share. It measures the price of a stock relative to its profits. You calculate the PE ratio by dividing the stock price with earnings per share (EPS). Formula: PE Ratio = Price Per Share / Earnings Per Share.
