A high P/E could mean that a stock's price is high relative to earnings and possibly overvalued. Conversely, a low P/E might indicate that the current stock price is low relative to earnings. Example of the P/E Ratio
Full Answer
What does a high price-earnings (P/E) ratio mean?
The price-earnings (P/E) ratio relates a company's share price to its earnings per share. A high P/E ratio could mean that a company's stock is over-valued, or else that investors are expecting...
What is the meaning of price earnings ratio?
The price-earnings ratio is also sometimes known as the price multiple or the earnings multiple. ... In essence, the price-earnings ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings.
How does the trailing P/E ratio affect the stock price?
If a major company event drives the stock price significantly higher or lower, the trailing P/E will be less reflective of those changes. The trailing P/E ratio will change as the price of a company’s stock moves, since earnings are only released each quarter while stocks trade day in and day out.
What is the purpose of the price-earnings ratio?
It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time. The price-earnings ratio (P/E ratio) relates a company's share price to its earnings per share.
What does a high price/earnings ratio indicate quizlet?
The price-earnings ratio (P/E ratio) relates a company's share price to its earnings per share. 2. A high P/E ratio could mean that a company's stock is over-valued, or else that investors are expecting high growth rates in the future.
What does a high price/earnings ratio indicate?
A high P/E ratio might indicate that a stock's price is high relative to its earnings and potentially suggests that the stock is overvalued. On the other hand, a low P/E ratio might mean that a stock is undervalued.
What does the price to earnings ratio tell you quizlet?
The price-earnings ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company's earnings. This is why the P/E is sometimes referred to as the multiple because it shows how much investors are willing to pay per dollar of earnings.
What does a low P E for a stock indicate quizlet?
A low P/E can indicate either that a company may currently be undervalued or that the company is doing exceptionally well relative to its past trends.
Is a high PE ratio good?
If you were wondering “Is a high PE ratio good?”, the short answer is “no”. The higher the P/E ratio, the more you are paying for each dollar of earnings. This makes a high PE ratio bad for investors, strictly from a price to earnings perspective.
Which of the following best describes a company with a high price earnings ratio?
Which of the following best describes a company with a high price-earnings ratio? A company whose earnings are expected to grow.
Why might a firm have a high P E ratio quizlet?
Higher rates of growth and lower debt levels contribute to higher P/E ratios. A company's estimated future earnings and its P/E ratio can be used to estimate the stock's future price. The estimated price of a stock in the future is important because it includes the projected capital gain on the stock.
Why might a firm have a high P E ratio?
A high P/E ratio could mean that a company's stock is overvalued, or that investors are expecting high growth rates in the future. Companies that have no earnings or that are losing money do not have a P/E ratio because there is nothing to put in the denominator.
How do you calculate price/earnings ratio quizlet?
The price-earnings ratio is calculated by dividing: Market value per share by earnings per share.
What does it mean when AP E is designated as a trailing P E quizlet?
Estimate the future price of a stock. What does is mean when a P/E is designated as a trailing P/E? The earnings used in the P/E calculation were for the past four quarters.
How is the price/earnings ratio computed?
The P/E ratio is calculated by dividing the market value price per share by the company's earnings per share. Earnings per share (EPS) is the amount of a company's profit allocated to each outstanding share of a company's common stock, serving as an indicator of the company's financial health.
Which of the following formulas determines price/earnings PE ratio Group answer choices?
Calculation: PE Ratio = Price Per Share/ Earnings Per Share. The trailing price-to-earnings ratio is based on past earnings, while the forward price-to-earnings ratio depends on the forecast of future earnings.
How is the price/earnings ratio computed?
The P/E ratio is calculated by dividing the market value price per share by the company's earnings per share. Earnings per share (EPS) is the amount of a company's profit allocated to each outstanding share of a company's common stock, serving as an indicator of the company's financial health.
Which of the following formulas determines price/earnings PE ratio Group answer choices?
Calculation: PE Ratio = Price Per Share/ Earnings Per Share. The trailing price-to-earnings ratio is based on past earnings, while the forward price-to-earnings ratio depends on the forecast of future earnings.
How is the dividend yield calculated quizlet?
A stock's dividend yield is calculated as the: annual dividend received per shares divided by the market price per share of stock.
Is earnings per share A dividend?
Earnings per share is a ratio that gauges how profitable a company is per share of its stock. On the other hand, dividends per share calculates the portion of a company's earnings that is paid out to shareholders.
What Is a Good Price-to-Earnings Ratio?
The question of what is a good or bad price-to-earnings ratio will necessarily depend on the industry in which the company is operating. Some industries will have higher average price-to-earnings ratios, while others will have lower ratios. For example, in January 2021, publicly traded broadcasting companies had an average trailing P/E ratio of only about 12, compared to more than 60 for software companies. 6 If you want to get a general idea of whether a particular P/E ratio is high or low, you can compare it to the average P/E of the competitors within its industry.
What Is the Price-to-Earnings (P/E) Ratio?
The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its earnings per share (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.
Why is a PEG ratio used?
The PEG ratio is used to determine a stock's value based on trailing earnings while also taking the company's future earnings growth into account and is considered to provide a more complete picture than the P/E ratio can. For example, a low P/E ratio may suggest that a stock is undervalued and therefore should be bought—but factoring in the company's growth rate to get its PEG ratio can tell a different story. PEG ratios can be termed “trailing” if using historic growth rates or “forward” if using projected growth rates.
Why do companies with no earnings not have a P/E ratio?
Companies that have no earnings or that are losing money do not have a P/E ratio because there is nothing to put in the denominator.
Why is price to earnings ratio called price multiple?
This is why the P/E is sometimes referred to as the price multiple because it shows how much investors are willing to pay per dollar of earnings. If a company was currently trading at a P/E multiple of 20x, the interpretation is that an investor is willing to pay $20 for $1 of current earnings.
What is the long term average P/E ratio of the S&P 500?
The long-term average P/E for the S&P 500 is around 16x, meaning that the stocks that make up the index collectively command a premium 16 times greater than their weighted average earnings. 1
How to find the P/E value of a stock?
To determine the P/E value, one must simply divide the current stock price by the earnings per share (EPS).