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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


1. In stock-index futures, the number multiplied by the futures price to determine the value of the contract. For example, the $500 multiple of the Standard & Poor's Midcap Index is multiplied by the futures price to determine the value of one contract. Thus, a futures price of $230 would yield a contract value of $115,000 ($500 × $230).


A stock's multiple is its price-to-earnings ratio (P/E). It's figured by dividing the market price of the stock by the company's earnings.

The earnings could be the actual earnings for the past four quarters, called a trailing P/E. Or they might be the actual figures for the past two quarters plus an analyst's projection for the next two, called a forward P/E.

Investors use the multiple as a way to assess whether the price they are paying for the stock is justified by its earnings potential. The higher the multiple they are willing to accept, the higher their expectations for the stock.

However, some investors reject stocks with higher multiples, since it may be impossible for the stock to meet the market's expectations.

References in periodicals archive ?
It's good for people who own one shop but are thinking of expanding, but it's also good for people who own multiple shops and are thinking of divesting," said Sherri Sands, CFO of SRSANDCO, LLC, the parent company of multiple auto repair brands and co-founder of Mudlick Mail.
Betfred will enjoy a fully integrated TurfTV/SIS service similar to that at Ladbrokes, Hills and Coral, which means around 7,000 big multiple shops have the service, leaving smaller independents seriously disadvantaged.
Q How can I create a unique, stylish and personal interiors scheme without trawling multiple shops looking for different accessories?
Other lists concern retailers, multiple shops, co-operative stores, voluntary associations and buying groups, department stores, mail order firms, wholesalers, caterers, canteens, the organisation for health authority food purchasing, hotels and even breweries.
With this feature, individual shops or chains of multiple shops can send data to a central location for analysis by shop owners.

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