| Title: | Market Investing |
| Moderator: | 2155::michaud |
| Created: | Thu Jan 23 1992 |
| Last Modified: | Thu Jun 05 1997 |
| Last Successful Update: | Fri Jun 06 1997 |
| Number of topics: | 1060 |
| Total number of notes: | 10477 |
Could someone please the P/E ratio? Higher the better, or is it the
other way around?
| T.R | Title | User | Personal Name | Date | Lines |
|---|---|---|---|---|---|
| 637.1 | CASDOC::ETZEL | Mike | Thu Dec 16 1993 15:15 | 14 | |
P/E = Price of stock / Earnings per year So if a stock sells at 20 and the company earns 1.00 dollar (or whatever) per year profit, the P/E ratio is 20. Stocks that are expected to have increasingly higher earnings over time (such as a small company stock whose earnings are growing at 50% per year) usually sell at high P/E ratios. The P/E ratio of a stock (or the stock indexes) are used to try to predict future stock prices. | |||||
| 637.2 | PAST, PRESENT OR FUTURE PE ???? | POBOX::PATEL | Mon Dec 20 1993 16:46 | 15 | |
Be careful if the fact that a PE ratio in one place on the same day and
in another publication on another day may be different.
Also PE ratios by most small and big Research Firms will calculate it
based on FORWARD EARNINGS. So a smart question to always ask yourself
is 1. What is the source of the PE ratio?
2. What EPS number was used to derive that ratio?
3. Is that EPS number the last FY year, or Last 12 months or Next
FY year?.
Getting into this level of detail is what makes Investing so much fun
and interesting (ie. LOVE or HATE type of a thing!!!).
KP
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| 637.3 | Using estimated PEs to estimate stock price | 11SRUS::TLE::PERIQUET | Dennis Periquet | Mon Dec 20 1993 19:30 | 20 |
Some analysts will look at PE ratio of the company (historic and
present) and look at the PE ratios of other companies in the same
industry (especially the company's competitors and other companies
that are comparable to the one in question).
Given this data, the analyst can analyze the company's fundamentals in
comparison with those of the other companies to try to predict the
future PE ratio. Usually, you work backwards by saying something like
"I think the PE will go up to 35; how can we justify that?, etc." If
you can't justify it, then lower the future PE estimate, etc.
Next, the analyst will endeavor to forcast the EPS for the next year
using other analysis. Given these two numbers, the analyst can make a
prediction of the stock price for one year from now.
The important thing to remember is that PE is really useless by itself.
You must use it in comparison with other companys' PE ratios.
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