Price-to-earnings ratio


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Related to Price-to-earnings ratio: Price Per Share

Price-Earnings Ratio

The price of a security per share at a given time divided by its annual earnings per share. Often, the earnings used are trailing 12 month earnings, but some analysts use other forms. The P/E ratio is a way to help determine a security's stock valuation, that is, the fair value of a stock in a perfect market. It is also a measure of expected, but not realized, growth. Companies expected to announce higher earnings usually have a higher P/E ratio, while companies expected to announce lower earnings usually have a lower P/E ratio. See also: PEG

Price-to-earnings ratio (P/E).

The price-to-earnings ratio (P/E) is the relationship between a company's earnings and its share price, and is calculated by dividing the current price per share by the earnings per share.

A stock's P/E, also known as its multiple, gives you a sense of what you are paying for a stock in relation to its earning power.

For example, a stock with a P/E of 30 is trading at a price 30 times higher than its earnings, while one with a P/E of 15 is trading at 15 times its earnings. If earnings falter, there is usually a sell-off, which drives the price down. But if the company is successful, the share price and the P/E can climb even higher.

Similarly, a low P/E can be the sign of an undervalued company whose price hasn't caught up with its earnings potential. Conversely, a low P/E can be a clue that the market considers the company a poor investment risk.

Stocks with higher P/Es are typical of companies that are expected to grow rapidly in value. They're often more volatile than stocks with lower P/Es because it can be more difficult for the company's earnings to satisfy investor expectations.

The P/E can be calculated two ways. A trailing P/E, the figure reported in newspaper stock tables, uses earnings for the last four quarters. A forward P/E generally uses earnings for the past two quarters and an analyst's projection for the coming two.

References in periodicals archive ?
Ulta's price-to-earnings ratio, near 34, isn't a low number, but it's below the company's five-year average P/E of 36; not bad for an outfit averaging 20 percent revenue growth over the past five years.
He likes a company whose price-to-earnings ratio is less than its actual growth rate.
With a price-to-earnings ratio near 12, the company's valuation compares favorably to other credit card-focused financial firms.
Although shares trade at a price-to-earnings ratio of 43, Edwards says the stock has earned something of a premium if only because it has averaged growth of 23% annually over the last five years.
Instead of focusing on the stock's price-to-earnings ratio, which measures the relative expensiveness of a stock, Hallaren prefers the price-to-sales ratio - market capitalization divided by sales in the prior four quarters.
Kroger's price-to-earnings ratio of 17 is well below its five-year average, suggesting it's attractively priced.
The S&P 500 is selling at a price-to-earnings ratio (P/E) of about 20 times 1998 earnings levels--among the highest ever.
DVM is a leading exponent of the low price-to-earnings ratio investment strategy that seeks to identify strongly financed growing companies whose stocks sell at prices that are low multiples of earnings.
Airspray among the top 100 European companies selected as "Best Under a Billion" based on its five-year average return on equity of 36%, five-year average EPS growth of 17%, and average twelve-month price-to-earnings ratio of 15%.
You need to consider how rapidly its revenue and earnings (and, ideally, profit margins) are growing, what its growth prospects are, and how attractive its price is relative to various measures --such as earnings, via the price-to-earnings ratio.
With growth like that in store, Carson shares are a bargain, Hu says, given their price-to-earnings ratio of 13, compared with 20 for the S&P 500.
NOV stock has a price-to-earnings ratio near 14 and a dividend yield close to 2.