pe ratio
pe ratio questions and answers
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Q: Berkshire PE ratio?
Berkshire's A shares closed around $109,000 today, when it was reported that earnings rose 12% to 2.6 billion, or $1682 per share. Now 109,000/1632 yields a PE ratio of almost 65. I know that can't be right, it is too high by about a factor of 6 or 7 from what I know about Warren Buffet's value investing style. What am I missing in my calculation?
I got the numbers from this article on CNN:
http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-16485932.htm
A: What you missed:
(a) That is $1682 for ONE QUARTER. Extended out to a year that would mean the equivalent of 64/4 or a P/E of 16.
(b) The reported earnings understate how good Berkshire is doing, since it doesn't account well for their investment portfolio and the rise in market value of the stocks they own, etc. Since Buffet et al are so good at stock-picking, this is signficant.
Q: What is PE Ratio of a day in capital market?
A: If there is one number that people look at than more any other it is the Price to Earnings Ratio (P/E). The P/E is one of those numbers that investors throw around with great authority as if it told the whole story. Of course, it doesn’t tell the whole story (if it did, we wouldn’t need all the other numbers.)
The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis, although it is far from the only one you should consider.
You calculate the P/E by taking the share price and dividing it by the company’s EPS.
P/E = Stock Price / EPS
For example, a company with a share price of $40 and an EPS of 8 would have a P/E of 5 ($40 / 8 = 5).
What does P/E tell you? The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings. Some investors read a high P/E as an overpriced stock and that may be the case, however it can also indicate the market has high hopes for this stock’s future and has bid up the price.
Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean this is a sleeper that the market has overlooked. Known as value stocks, many investors made their fortunes spotting these “diamonds in the rough” before the rest of the market discovered their true worth.
What is the “right” P/E? There is no correct answer to this question, because part of the answer depends on your willingness to pay for earnings. The more you are willing to pay, which means you believe the company has good long term prospects over and above its current position, the higher the “right” P/E is for that particular stock in your decision-making process. Another investor may not see the same value and think your “right” P/E is all wrong.
PE ratio of the entire stock market on a day is the weighted average of the ratios of price of different listed companies on the day (closing price) to the companyies' earnings (net profit after tax) per share during the latest accounting year (sometimes projected earnings of the current accounting year/ or any other future year is taken).
A valuation ratio of a company's current share price compared to its per-share earnings.For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).
EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two quarters. Also sometimes known as "price multiple" or "earnings multiple".
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings.
It is important that investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this measure alone. The denominator (earnings) is based on an accounting measure of earnings that is susceptible to forms of manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.
Want to understand once more?
The P/E ratio (price-to-earnings ratio) of a stock (also called its "earnings multiple", or simply "multiple", "P/E", or "PE") is a measure of the price paid for a share relative to the annual income or profit earned by the firm per share. A higher P/E ratio means that investors are paying more for each unit of income. It is a valuation ratio included in other financial ratios. The reciprocal of the P/E ratio is known as the earnings yield. The price per share (numerator) is the market price of a single share of the stock. The earnings per share (denominator) is the net income of the company for the most recent 12 month period, divided by number of shares outstanding. The earnings per share (EPS) used can also be the "diluted EPS" or the "comprehensive EPS". The P/E ratio can also be calculated by dividing the company's market capitalization by its total annual earnings.
For example, if stock A is trading at $24 and the earnings per share for the most recent 12 month period is $3, then stock A has a P/E ratio of 24/3 or 8. Put another way, the purchaser of stock A is paying $8 for every dollar of earnings. Companies with losses (negative earnings) or no profit have an undefined P/E ratio (usually shown as Not applicable or "N/A"); sometimes, however, a negative P/E ratio may be shown.
By comparing price and earnings per share for a company, one can analyze the market's stock valuation of a company and its shares relative to the income the company is actually generating.[citation needed] Investors can use the P/E ratio to compare the value of stocks: if one stock has a P/E twice that of another stock, all things being equal (especially the earnings growth rate), it is a less attractive investment. Companies are rarely equal, however, and comparisons between industries, companies, and time periods may be misleading.
To calculate the P/E ratio of a market index such as the S&P 500, it is not accurate to take the "simple average" of the P/Es of all stock constituents. The preferred and accurate method is to calculate the weighted average. In this case, each stock's underlying market cap (price multiplied by number of shares in issue) is summed to give the total value in terms of market capitalization for the whole market index. The same method is computed for each stock's underlying net earnings (earnings per share multiplied by number of shares in issue). In this case, the total of all net earnings is computed and this gives the total earnings for the whole market index. The final stage is to divide the total market capitalization by the total earnings to give the market P/E ratio. The reason for using the weighted average method rather than 'simple' average can best be described by the fact that the smaller constituents have less of an impact on the overall market index. For example, if a market index is composed of companies X and Y, both of which have the same P/E ratio (which causes the market index to have the same ratio as well) but X has a 9 times greater market cap than Y, then a percentage drop in earnings per share in Y should yield a much smaller effect in the market index than the same percentage drop in earnings per share in X.
A variation that is often used is to exclude companies with negative earnings from the sample - especially when looking at sub-indices with a lower number of stocks where companies with negative earnings will distort the figures.
In Stocks for the Long Run, Jeremy Siegel argues that the earnings yield is a good indicator of the market performance on the long run. The average P/E for the past 130 years has been 14.45 (i.e. earnings yield 6.8%). Shiller has argued that the mean P/E has risen from 12 to about 21 during 1920 to 2003[6]. Matt Blackman has examined a trading strategy using P/E ratio involving staying out of the market when P/E's 2 year SMA falls below 5 year SMA. It resulted in capturing 91% of the gain by staying in the market for only 42% of the time.
[edit] An example
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An easy and perhaps intuitive way to understand the concept is with an analogy:
Let's say I offer you a privilege to collect a dollar every year from me forever. How much are you willing to pay for that privilege now? Let's say you are only willing to pay me 50 cents, because you may think that paying for that privilege coming from me could be risky. On the other hand, suppose that the offer came from Bill Gates, how much would you be willing to pay him? Perhaps, your answer would be at least more than 50 cents, let's say, $20. Well, the price earnings ratio or sometimes known as earnings multiple is nothing more than the number of dollars the market is willing to pay for a privilege to be able to earn a dollar forever in perpetuity. Bill Gates' P/E ratio is 20 and my P/E ratio is 0.5.
Now view it this way: The P/E ratio also tells you how long it will take before you can recover your investment (ignoring of course the time value of money). Had you invested in Bill Gates, it would have taken you at least 20 years, while investing in me could have taken you less than a year, that is, only 6 months.
If a stock has a relatively high P/E ratio, let's say, 100 (which Google exceeded during the summer of 2005), what does this tell you? The answer is that it depends. A few reasons a stock might have a high P/E ratio are:
The market expects the earnings to rise rapidly in the future. For example a gold mining company which has j
Q: Why is the PE ratio of SRF Ltd only 4.11 (low) compared to other companies of similar products?
Following is the details of SRF Ltd. Company listed on BSE and NSE. Please let me know why their PE ratio is so low.
PE ratio 4.11 10/01/08
EPS (Rs) 42.58 Mar, 07
Sales (Rs crore) 450.48 Sep, 07
Face Value (Rs) 10
Net profit margin (%) 15.95 Mar, 07
Last bonus 1:2 25/08/83
Last dividend (%) 20 26/04/07
Return on average equity 35.47 Mar, 07
A: Generally stocks trade in the PE multiples of the expected future earnings. What matters is the forecasted income not the historical ones. Maybe SRF doesnt have a good order book or analyst expect it to perform not so well in the foreseeable future.
Q: what is the mean of "PE ratio" & "EPS" ?
A: Earnings per share (EPS) ratio :
EPS = Net Earnings / Outstanding Shares
So looking at the EPS ratio, you should go buy Company A with an EPS of 10, right? EPS is not the only basis of comparing two companies, but it is one of the methods used.
Note that there are three types of EPS numbers:
Trailing EPS – last year’s numbers and the only actual EPS
Current EPS – this year’s numbers, which are still projections
Forward EPS – future numbers, which are obviously projections
EPS doesn’t tell you whether it’s a good stock to buy or what the market thinks of it.
PE Ratio :
If there is one number that people look at than more any other number, it is the “Price to Earning Ratio (P/E)”. The P/E is a ratio that investors throw around with confidence as if it told the complete story. Of course, it doesn’t tell the whole story (if it did, we wouldn’t need all the other numbers.)
The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular stock analysis ratio, although it is not the only one you should consider.
You calculate the P/E by taking the share price and dividing it by the company’s EPS (Earnings Per Share that we saw above)
P/E = Stock Price / EPS
For example: A company with a share price of Rs.40 and an EPS of 8 would have a P/E of: (40 / 8) = 5
What does P/E tell you?
Some investors read a high P/E as an “overpriced stock”.
However, it can also indicate the market has high hopes for this stock’s future and has bid up the price.
Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean that the market has just overlooked the stock. Many investors made their fortunes spotting these overlooked but fundamentally strong stocks before the rest of the market discovered their true worth.
In conclusion, the P/E tells you what the market thinks of a stock. It tells you whether the market likes or dislikes the stock.
Q: Which URL shows market rate, PE Ratio and EPS of Indian shares?
While I want to study a share I have to know market rate, PE Ratio and EPS of that at a glance. If all these factor are favourable then balance sheet and P and L account required. Many site shows all these things for each individual share like Moneycontrol.com yet I want to know about any other site which shows datas in a tabular form. Would any body help me? Jugal Jaipur Rajasthan India
A: It seems to me you can get all that information from the Yahoo India Finance site. Go to the front page (URL below), there are links there giving information for individual shares or ratios for the Indexes as a whole.
Q: I the price earning ratio the most important indicator that a share is a good one to buy?
If the PE ratio is about 33% should one conclude that the share is a no-brainer or are there other factors that might be redeeming? If so, what are they/
A: P/E, P/S and Debt are the 3 things I look for first when evaluating stock.
I think debt is overlooked by most retailers and then they can't figure out why stocks have secondaries which dilute their stocks.
As an example from a recent question:
Look at F and you'll see that the company is really owned by bond holders. If you own F stock and think you own part of the company you're fooling yourself.
Market cap of F from stocks is 13B and the debt is 162B ... and they only have 23B in cash to offset that debt load. F will declare bankruptcy or they will have to issue more stock to offset the debt cause there is no way they will ever make that much money. (23B in positive earnings in the last 10 years.)
Q: What was PE ratio of Japanese average stock or indexes when the Jap stocks were at peak price in 1989 1990?
A: In April 1989 Canon was selling at 41x earnings. Toyota 22x. Fuji 15x. Honda 17x. Hitachi 32x. Kubota 94x. Kyocera 31x. Matsushita 24x.
Q: what is the pe ratio in share market?
A: The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular stock analysis ratio, although it is not the only one you should consider.
You calculate the P/E by taking the share price and dividing it by the company’s EPS (Earnings Per Share that we saw above)
P/E = Stock Price / EPS
For example: A company with a share price of Rs.40 and an EPS of 8 would have a P/E of: (40 / 8) = 5
What does P/E tell you?
Some investors read a high P/E as an “overpriced stock”.
However, it can also indicate the market has high hopes for this stock’s future and has bid up the price.
Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean that the market has just overlooked the stock. Many investors made their fortunes spotting these overlooked but fundamentally strong stocks before the rest of the market discovered their true worth.
In conclusion, the P/E tells you what the market thinks of a stock. It tells you whether the market likes or dislikes the stock.
PEG (Price to future growth ratio!) and what it tells you!
The market is usually more concerned about the future than the present, it is always looking for some way to figure out what is going to happen in the companies future.
A ratio that will help you look at future earnings growth is called the PEG ratio.
You calculate the PEG by taking the P/E and dividing it by the projected growth in earnings.
PEG = (P/E) / (projected growth in earnings)
For example, a stock with a P/E of 30 and projected earning growth next year of 15% would have a PEG of 30 / 15 = 2.
What does the “2” mean?
Technically speaking: The lower the PEG number, the less you pay for each unit of future earnings growth. So even a stock with a high P/E, but high projected earning growth may be a good value.
So, to put it very simply, we are interested in stocks with a low PEG value.
Just for the sake of understanding, consider this situation, you have a stock with a low P/E. Since the stock is has a low P/E, you start do wonder why the stock has a low P/E. Is it that the stock market does not like the stock? Or is it that the stock market has overlooked a stock that is actually fundamentally very strong and of good value?
To figure this out, you look at the PEG ratio. Now, if the PEG ratio is big (or close to the P/E ratio), you can understand that this is probably because the “projected growth earnings” are low. This is the kind of stock that the stock market thinks is of not much value.
On the other hand, if the PEG ratio is small (or very small as compared to the P/E ratio, then you know that it is a valuable stock) you know that the projected earnings must be high. You know that this is the kind of fundamentally strong stock that the market has overlooked for some reason.
Important note: You must understand that the PEG ratio relies on the projected % earnings. These earnings are not always accurate and so the PEG ratio is not always accurate.
Q: I want to find the monthly PE ratio for the FTSE index over the last 30 years?
A: goto the www.FT.com - stacks of market info there
Q: how do we calculate PE ratio?
A: Price per share of the stock / Price per share of net income.
Q: Where to get info.of indonesia listed companies Price Earning Ratio(PE) in stock market itself?
A: http://www.securities.com/search_campaign.html?ui_lang=EN&how_hear=110&spage=10266&gclid=CL2k-Y29vJICFQOUaAodwHRncg
Q: If I have 800000 in earnings and all earnings are paid in dividends. 15% Return. What is the PE Ratio?
A: If your dividend totals 800,000 and is @ 15% then earnings are 5,333,333.33! PE is the ratio of earnings against the value of the company. However Dividends are paid from profit which is what is left after taxes and all other expenses have been deducted from the company earnings so your 5.33 million is only a fraction of the companies actual earnings. The 'price' or value of the company is deemed to be the value of the shares multiplied by the number of shares in issue.
However this is often very different to the value placed on a company 'in/on the books/accounts', as this is generally worked out on the realiseable value of the companies assets including materials buildings vehicles plant plus a value for goodwill and etc. including future orders and contracts.
Q: What is EPS and Pe ratio?
A: EPS- earnings per share (the amount of earnings each common shareholder would receive per share if the company gave out earnings instead of remitting them)
Pe ratio- Price/earnings ratio is the difference between the price of a company in a market (ie. the New York Stock Exchange) divided by the earnings of the company
Q: how to find better stock- pe ratio, value investing what is your idea of value investing?
A: My idea of value investing is the purchase of bank stocks. BAC, C, BBT, USB, and many others.
Q: PE Ratio , where can i get the PE industy standards Benchmarks ,i just need a source.?
A: http://www.jpmorgansavant.com/