price-earnings ratio


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Price-earnings ratio

Shows the multiple of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio are determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher multiple means investors have higher expectations for future growth, and have bid up the stock's price.

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-earnings ratio (P/E ratio)

A common stock analysis statistic in which the current price of a stock is divided by the current (or sometimes the projected) earnings per share of the issuing firm. As a rule, a relatively high price-earnings ratio is an indication that investors believe the firm's earnings are likely to grow. Price-earnings ratios vary significantly among companies, among industries, and over time. One of the important influences on this ratio is long-term interest rates. In general, relatively high rates result in low price-earnings ratios; low interest rates result in high price-earnings ratios. Also called earnings multiple, market multiple, multiple, P/E ratio. See also forward P/E, trailing P/E.

price-earnings ratio

a ratio used to appraise a quoted public company's profit performance, which expresses the market PRICE of the company's SHARES as a multiple of its PROFIT. For example, if a company's profit amounted to £1 per share and the price of its shares was £10 each on the STOCK MARKET; then its price-earnings ratio would be 10:1. Where a company's prospects are considered by the stock market to be good, then it is likely that the company's share price will rise, producing a higher price-earnings ratio. Price-earnings ratio is the mirror image of EARNINGS YIELD. See EARNINGS PER SHARE.

price-earnings ratio

a ratio used to appraise a quoted public company's profit performance that expresses the market PRICE of the company's SHARES as a multiple of its PROFIT. For example, if a company's profit amounted to £1 per share and the price of its shares was £10 each on the STOCK EXCHANGE, then its price-earnings ratio would be 10:1. Where a company's prospects are considered by the stock exchange to be good, then it is likely that the company's share price will rise, producing a higher price-earnings ratio. The price-earnings ratio is the mirror image of EARNINGS YIELD. See EARNINGS PER SHARE.
References in periodicals archive ?
Independent variables are metric--beta and price-earnings ratio.
The combined effects of a decrease in net income and a reduction in the price-earnings ratio will produce a relatively large decrease in the price of the company's stock.
The second covers price-earnings ratios, market-to-book ratios, and stock returns; earnings and stock returns; and fundamental analysis and stock returns.
This implies a preference for large-cap stocks at the expense of mid and small caps, and for companies with low price-earnings ratios and high yields.
Price-earnings ratios by themselves are not effective predictors of stock market value.
Milne also warns that it's unrealistic to value a private company by relying on the price-earnings ratios that prevail among public companies.
Stock prices became unhinged from reality; average price-earnings ratios exceeded 60 (in the United States P:E ratios of 20 are considered high).
As a result, conventional price-earnings ratios hit a peak of more than 70 in August 1987, which was about three to five times the PE ratios in other major markets.
Investors should mix their holdings to include about 30 percent technology stock, some value stocks that have low price-earnings ratios and solid industry leaders, Christopher said.
Based on some preliminary findings, such firms have lower price-earnings ratios and smaller appreciations in market value over time than profit-oriented firms.