The price-earnings ratio (P / E ratio) is the ratio for evaluating a company that measures the current price of shares in relation to its share income. Value for money is also sometimes called the price of several or more incomes.
P / E can be calculated as:
Market value per share / earnings per share
For example, suppose a company is currently trading at $ 43 per share, and its earnings over the past 12 months have been $ 1.95 per share. Then the P / E ratio for the stock can be calculated as 43/1. 95, or 22.05.
EPS most often comes from the last four quarters. This form of price-earnings ratio is called lagging P / E, which can be calculated by subtracting the value of the company's shares at the beginning of the 12-month period from its value at the end of the period, adjusting for the decomposition of stocks if they were Any. Sometimes price earnings can also be taken from estimates of revenue analysts expected over the next four quarters. This form of price income is also called projected or forward P / E. A third, less common change uses the sum of the last two actual quarters and the estimates of the next two quarters.
TURN OFF “Price-earnings ratio - P / E ratio”
In fact, the price-earnings ratio shows the amount of a dollar that an investor can count on investing in a company in order to get one dollar from that company's profit. This is why P / E is sometimes called plural, as it shows how many investors are willing to pay for a dollar of earnings. If a company is currently trading with multiple (P / E) 20s, the interpretation is that the investor is willing to pay $ 20 for $ 1 for current income.
You can track P / E ratios for stocks in your portfolio or individual stocks by adding them to your own watchlist. Here we list the top and bottom three companies in the S & P 500 by the P / E ratio. This list is updated daily based on stock price movements, so adding stocks that you are interested in is a watchlist - the best way to keep track of them.
Highest P / E ratios in the S & P 500
|Add||Symbol||P / e||Price|
|Eog||10, 458. 00||104. 58|
|EOG Resources Inc|
|Hlt||768. 39||72. 69|
|Hilton Worldwide Holdings Inc|
|FMC||623. 96||93. 22|
|Add||Symbol||P / e||Price|
|EBAY||5. 34||35. 97|
|Mkk||6. 53||137. 61|
|Navi||6. 73||12. 21|
In general, a high P / E suggests that investors expect profit growth in the future compared to companies with a lower P / E level. A low P / E level may indicate that the company is currently undervalued or that the company is doing exceptionally good in relation to past trends. When a company has no profit or loss, in both cases P / E will be expressed as “N / A”. “Although negative P / E can be calculated, this is not a general agreement.
The ratio of price and profit can also be considered as a means of standardizing the value of one dollar of earnings in the stock market. Theoretically, taking the median of the P / E ratios over the course of several years, one could formulate something like a standardized P / E ratios, which could then be seen as a benchmark and used to indicate whether the value is worth the purchase.
Limitations “Price-earnings ratio”
Like any other metric designed to inform investors about whether to buy stocks, the price-earnings ratio has several important limitations that are important to consider, since investors often have to assume that there is one metric that will provide a complete understanding of the investment decision. which almost never happens.
When comparing the P / E ratios of different companies, there is one main restriction on the use of P / E ratios. Estimates and growth rates of companies can often vary greatly between sectors, due to both the different ways in which companies earn money and the different periods during which companies make that money. Therefore, only P / E should be used as a comparative tool when considering companies in the same sector, since this type of comparison is the only one that will provide productive insight. For example, comparing P / E ratios between a telecommunications company and an energy company may make it seem like an excellent investment, but this is not a reliable assumption.
The P / E coefficient of an individual company is much more significant when taken along with the P / E coefficients of other companies in the same sector. For example, an energy company may have a high P / E ratio, but this may reflect a trend in the sector, and not just within a single company. For example, a high P / E coefficient from one company will be less dangerous if the entire sector has high P / E ratios.
In addition, since company debt can affect both stock prices and company profits, leverage can also distort P / E ratios. For example, suppose that there are two similar companies that differ mainly in the amount of debt they take on yourself. It is likely that who has more debt will have a lower P / E cost than one that has less debt. However, if the business is good, the one with the most debt sees higher returns because of the risks that he has taken.
Another important limitation of the price-earnings ratio is the one that lies in the formula for calculating P / E itself. Accurate and unbiased presentations of P / E ratios are based on accurate input of the market value of shares and accurate estimates of earnings per share. While the market determines the value stocks and, therefore, this information can be obtained from a variety of reliable sources, it is less for making money, which is often reported by the companies themselves and, therefore, easier to manipulate. Since earnings are an important contribution to the calculation of P / E, their adjustment can also affect P / E.
The ratio of stock price to income (PE or
If the capital market correctly assesses the situation, it is likely that it will not respond to an increase in the ratio of share price to earnings per share due to a takeover by a company that potentially cannot provide growth in a way other than takeovers. In this case, the acquiring company should be able to effectively manage the acquired companies and demonstrate to the market the effect of the synergy effect if the income from the acquisitions is sufficiently stable. If the market is relatively perfect and there is no synergy effect, we should expect that the ratio of the share price to earnings per share of the absorbing company will approach the average of the values of these relations among the absorption participants. Under these conditions, the takeover of companies with a lower value of this indicator does not lead to an increase in the well-being of shareholders. In fact, if the exchange ratio of market prices exceeds 1.00, then the share price of the absorbing company will decrease as a result of the merger. However, the well-being of shareholders can be increased if the merger causes a synergy effect or an increase in management efficiency. c.683
Price / earnings ratio, C / D ,,, Market price of a share Earnings per share per "od" is calculated as the ratio of the company's net profit for the year to the number of shares sold. The ratio of up to 10 refers to shares with a low ratio of more than 30 - s high c.113
P / E - the ratio of stock prices to income on it. Calculated as quotient p.28
RATIO OF PRICE TO SHARE INCOME p.91
Regarding the analysis of products for investment, it is believed that in general there are two clear approaches to the specific selection of technical and fundamental analysis. The latter is based on the factors already mentioned. Available detailed financial indicators are used to calculate a wide range of ratios. Based on these coefficients, the analyst determines a number of profit and growth standards and can estimate the future profitability of the company in numbers. The most important of the monitored ratios is the ratio of price to earnings per share (P / E). It represents the number of years for which a company will be able to recoup (in terms of profit) the price of its share. Higher c.134
Using the conglomerate boom as a paradigm, I developed the ideal type of sequence for a quick rise in business activity - a decline. This cycle begins with the dominance of some prejudice and some dominant tendency. In the case of the conglomerate boom, the dominant prejudice was the preference given to the rapid growth of earnings per share, without considering the way to achieve this growth, and the dominant trend was the ability of companies to achieve rapid growth of earnings per share by using their shares to acquire other companies that sold shares with a lower share price to earnings ratio. At the initial stage (1), the trend is not yet recognized. Then comes the acceleration period (2), when the trend is recognized and reinforced by the dominant biased opinion. The verification period (3) may intervene, causing courses to fall. If biased opinions and tendencies continue to exist, then the boom is gaining even higher rates (4). Then comes the moment of truth (5), when the real situation can no longer meet high expectations, then there comes a period of twilight (6), when people continue to play the game, although they no longer believe in it. In the end, the transition point (7) is reached, when the tendency begins to weaken, and the biased opinion begins to work in the opposite direction, which leads to a catastrophic acceleration of movement in the opposite direction (8), usually called collapse. p.42
Ratio of share price to earnings per share Estimated price, rub. Calculated P - coefficient Required rate of return on shares,% Estimated price, rub. c. 195
The ratio of share price to income (P / E or PER) c.155
The ratio of share price to income shows how often earnings per share appear at the current exchange rate c.85
A speculator working for a fall, having received an indicator of the ratio of price to income, may come to the conclusion that the value of the company is overvalued. Suppose he analyzed this indicator for a particular industry over the past 10 years. If this indicator in the industry rises to 25, the stock price of such companies first rises sharply, and then falls just as sharply. When analyzing the ratio of price to income and earnings per 1 share, everything is determined by how investors imagine the company's prospects for the future. If they believe that it will keep growth, the ratio of price to income will increase. If not, then vice versa. p.204
Portfolio strategies can be divided into active and passive. Active portfolio strategies use available information and forecasting methods to increase investment efficiency compared to simple diversification. The most significant point for all active strategies is the prediction of factors that can affect the investment characteristics of this asset class. For example, proactive strategies for working with common stock portfolios may include forecasting future earnings, dividends, or price-earnings ratios. Bond strategies are based on the forecasting of the future level c.345
The ratio of the share price to income on it. p.86
A method of comparing the price determined by the investor to a comparable value looks like the ratio of the price to the income of various stocks. This is the ratio of the market price of a company's share to the company's net profit per share for a certain period (quarter, year). It is used to assess the yield potential of a security and market demand for it. The price-earnings ratio is the price per share divided by the company's annual income from this share. If a stock is sold for $ 50 and the company earns $ 6 per share, the price-earnings ratio of the stock is 8.3. If all companies promised at the same time, then all shares will be sold with the same ratio of market price to income. Earnings from a stock are, first of all, an impartial objective measurement of the income that can be expected from a stock. A certain portion of this income is paid in dividends. Some of them are reinvested in the company, increasing the value of their assets and potential for future profits. p.45
A conscientious researcher can almost always find and select stocks, then selling below the price-earnings ratio, and some even below the “book value of assets”. Of course, such statistically cheap stocks can be cheap for an obvious reason (and therefore it is unrealistic that they can be quite cheap). Obvious deals can be thoroughly investigated. Do their low prices reflect most of the problems Or are they unjustly underestimated by a changing market leading to changes in something else. The disadvantage here is the very tendency to change, which leads you into a long misleading. Therefore, when you buy undervalued stocks of a company that is not properly priced, you should be prepared to sit down and hold your stocks until other investors recognize their value. p.46
A typical example of fuzzy knowledge is a statement like: If the expected ratio of the share price to income on it is about 10 in the near future, and (although not necessarily) the company's capitalization is at the level of $ 10 billion, then most likely these shares should be bought. Italics indicate all grades that make this knowledge fuzzy. p.40
So, for example, an investor in securities should monitor how the key ratio of the price of a share to the income from it for an enterprise correlates with the same for the sector of the economy to which it relates. Such information is contained on almost all major US financial Internet sites, and in some places, for example, on site 3.2, two levels of indicators are compared and a conclusion is made on the quality to which these levels are separated from each other. p.44
P / E - the ratio of the share price to the company's net income per share. c.140
First of all, it should be noted that, as in the case of the American stock market, the key fundamental indicator of stock valuation is the ratio of the share price to income on it in annual terms (P / E), in shares. At p.55
Example. Net income of the bank after tax amounted to 1 million rubles. 100 thousand shares are in circulation, income per share is 10 rubles. If the bank's shares were sold at a price of 150 rubles. for 1 pc., then the ratio of price to income will be 15 (150 rubles. 10). Multiplying this ratio (15) by earnings per share (10 rubles), we get the sale price of the share of 150 rubles. c.338
The main columns of this table show the number of companies listed on the exchanges, market capitalization in millions of US dollars, stock returns as a ratio of market value to dividends, as well as price to income and price to face value ratios for the respective markets at the end of 1996. After converting this data so that the standard deviation of each column becomes equal to unity, we constructed the RNC representing these basic data in a two-dimensional form. Figure 6-1 shows a RR of dimension 6x4. Data vectors in the table. 6.1 were distributed between 24 (6x4) neurons, and the vectors that were most similar to each other were grouped in the same neurons c.136
Country Reduction Number of companies Market. Profitability cap-share (mln. USD) Price-to-income ratio Price-to-nominal ratio c.138
Price-earnings-per-share ratio = Current market yen acinn c.91
P / E (ratio of the market price of a share to income on it) 13.7. PIS (ratio of share price to sales volume) 13.8. PIB (market price of shares to equity) 1,280 rubles. i 1024 rub.1,280 rub. -9,249 rubles 1,280 rub. 2083 rub. 360 rubles. 124,291 rubles 360 RU6- = 0.05 6557 rub. 360 rubles = 021 1352 rub. 1125 rub. -------— = 1.23,914 rubles. 1125 rub. v -0.125 8992 rub. 1125 rub. = () 61 1855 rub. c.337
Along with Fortune magazine material, the selection of 100 World Business Leaders in the American Business Week magazine is of great practical interest. This magazine publishes summary figures for the 1000 largest companies in industry, services and banks from 26 countries, whose shares are listed on leading stock exchanges in the world. For each company, a place is given among the firms of a given country and a rank among the 1000 largest companies in the world depending on the market value of shares, share price and percentage growth, the ratio of the share price to the value of assets and to income, dividends, sales, assets, and also a code industry in which the company operates. c.215
PRICE RATIO OF SHARE PRICE TO INCOME RECEIVED ON IT (pri e / earnings ratio) - the ratio of the current market price of a share to total earnings per share for 12 months. One of the main indicators of the financial position of the company. c.396
When everyone begins to assure that this is a profitable investment, I immediately want to abandon it. For example, in 1984 I liked the American shares of Silaniz. I remember that on August 8 they went for sixty-four dollars. I remember this because eight eight will be sixty four. I bet with a friend that everything will be fine. I liked that at a price of sixty-four dollars, the cash flow was twenty-eight dollars per share. It was just gorgeous. The price to income ratio was five units. Dividend income exceeded 5%. The value of the assets was significantly higher than stated. It all looked great. And income grew. Now these shares are priced at $ 190, dividend income has declined significantly, cash flow of twenty-eight dollars at a share price of $ 190 gives a completely different percentage, and brokers have already begun to offer this company. That is, the company has exhausted the potential purchasing power of the market and it's time to sell it. And although in the future she can still achieve success, which I sincerely wish her, but now it's time to say goodbye to her. p.31
For an adequate comparison of the EPS indicator of several corporations, it is necessary to use not the absolute value of EPS, but relative. As such, the ratio of share price to earnings per share is used. This indicator is called P / E (Pri e-earnings ratio) and is calculated by the formula c.170
And now we will focus on the indicator, which is based on analytical studies carried out on the site www.fool. om. Simply put, we are talking about comparing indicators such as the ratio of price to income and earnings per share. This will provide an idea of whether the market value of the company is overestimated or underestimated, p.204
Let us turn to the following example. For the previous year net profit Overvalued orp. amounted to $ 5 million, and the value of the outstanding shares - 1 million. Thus, the profit of this company per 1 share for the previous year was $ 1 ($ 5 million divided by 1 million shares). If the rate of its securities is $ 20 per share, then the price-earnings ratio is 20 (divide $ 20 by the rate of return on I share, equal to $ 1). p.204
So if overvalued orp. the price-earnings ratio is 100, and the growth rate is 50%, the price-earnings-earnings ratio per share is 2 (100 50). In principle, the higher this indicator, the more reason to talk about c.205
Price to income ratio (pri e (about earnings ratio) - the calculation of this indicator is carried out according to the formula the current share price is divided by its profit indicator (this method of calculation is used by brokers who make short sales if the estimated value of the company's assets is too high if the industry-wide indicator the ratio of price to income is 10, and the corresponding indicator of a company is 50, the latter is probably overstated. See Earnings per share. c.354
Earnings per share (EPS) - this indicator is calculated by the company’s net income divided by the number of its shares. So, if the company's income is $ 1 and the number of shares is $ 1 million, earnings per share are $ 1 ( the indicator is used to calculate the ratio of the company’s yen to its income.) See Price-earnings ratio c.356
The first two left columns show the highest (High) and lowest (Low) stock prices of IBM over the past year, that is, over 52 weeks. As you can see, the highest share price was 140 1/2 dollars, the lowest - 80 1/8 dollars. In the third column (Sto k) is the name of the company IBM. The fourth column (Div) shows the dividend in US dollars over the past year, it is equal to $ 5.01. The fifth column (Yed%) gives the dividend rate, which is defined as the percentage of the dividend to the share price. IBM's dividend rate is 6.0%. . The sixth column (P-E, Ratio) - this is the ratio of the share price to earnings per share, this indicator allows you to find out how many years the share will pay off if you buy it at the current rate. For the analyzed IBM company, the payback period is 15 years. It should be noted that a high P-E indicator speaks in favor of the company, that is, the market has good expectations regarding its prospects. However, if the share price is high, then such a share may not always be considered as a profitable capital investment. c. 154
From time to time, such investor confidence may be justified, but more often the opposite happens. Apple was a great company, but with a price-earnings ratio of -150, its stock price was bloated (it later plummeted). However, many investors tend to climb a bandwagon or pay recklessly excessive amounts for stocks that are closer to their heart at the moment. These whims arose from some careful observation of the cost of ordinary types of paper. More and more people come to these observations (like “Computer stocks are the wave of the future”), buying shares “in doubt” is a reward for those who saw them first due to their insight. p.46
Explain how to calculate price-earnings ratio in Excel
Suppose you want to compare the P / E ratio between two companies that are in the same sector using Microsoft Excel. First, right-click on columns A, B, and C and left-click on the width of the column and change the value to 25 for each column. Then click OK. Enter the name of the first company in cell B1 and the second company in cell C1.
For example, Apple Inc. and Google Inc. are competitors. Apple lags behind a 12-month diluted EPS at $ 8. 05, while Google is lagging behind a 12-month diluted EPS with $ 21. 16. June 25, 2015 Apple closed for $ 127. 50, and class A shares of Google closed at 557 dollars. 95.
In cells B1 and C1, enter Apple and Google, respectively. Then enter the diluted EPS in cell A2, the market price per share in cell A3, and the P / E ratio in cell A4.
Enter = 8. 05 to cell B2 and = 127. 50 to cell B3. Calculate the P / E ratio for Apple by entering the formula = B3 / B2 in cell B4. Apple's P / E ratio is 15.84.
Then enter = 21. 16 into cell C2 and = 557. 95 into cell C3. Calculate the P / E coefficient for Google by typing = C3 / C2 in cell C4. The resulting P / E ratio is 26. 37.
Investors are willing to pay $ 15. 84 for 1 US dollar from current income, while willing to pay 26 US dollars. 37 for 1 US dollar for current Google revenue.