That said, here is a general guideline about good PE ratios based on growth rate:
- No growth: 10 or lower
- Slow growth: 12
- Moderate growth: 15
- Fast growth: 25+
What is a good P/E ratio for a stock?
Apr 03, 2022 · So, what is a good PE ratio for a stock? A “good” P/E ratio isn’t necessarily a high ratio or a low ratio on its own. The market average P/E ratio currently ranges from 20-25, so a higher PE above that could be considered bad, while a lower PE ratio could be considered better. However, the long answer is more nuanced than that.
What does P/E ratio tell about a stock?
Mar 11, 2022 · P/E ratio, or price-to-earnings ratio, is a quick way to see if a stock is undervalued or overvalued. And so generally speaking, the lower the P/E ratio is, the better it is for both the business and potential investors. The metric is the stock price of a company divided by its earnings per share. You shouldn’t compare P/E ratios of different kinds of companies, like a …
What is a good P/E ratio?
Jun 08, 2021 · What Is a Good P/E Ratio? A good P/E ratio is one that is consistent or shows consistent growth. The actual number that this may be for a particular company may vary. P/E ratios can be misleading if looked at without considering a company’s recent history.
Are P/E ratios important for penny stocks?
Nov 11, 2019 · There are many conservative investors, who would never buy stocks trading at a P/E ratio of above 30. On the other side, many investors are actually looking for businesses with high P/Es with the hope that those businesses are going to grow rapidly in the near future.
What is a good PE ratio for stocks?
A higher P/E ratio shows that investors are willing to pay a higher share price today because of growth expectations in the future. The average P/E for the S&P 500 has historically ranged from 13 to 15. For example, a company with a current P/E of 25, above the S&P average, trades at 25 times earnings.
Is 30 a good PE ratio?
A P/E of 30 is high by historical stock market standards. This type of valuation is usually placed on only the fastest-growing companies by investors in the company's early stages of growth. Once a company becomes more mature, it will grow more slowly and the P/E tends to decline.
Is it better to have a higher or lower PE ratio?
Many investors will say that it is better to buy shares in companies with a lower P/E because this means you are paying less for every dollar of earnings that you receive. In that sense, a lower P/E is like a lower price tag, making it attractive to investors looking for a bargain.
Is a PE ratio of 10 good?
A P/E ratio of 10 might be pretty normal for a utility company, while it might be exceptionally low for a software business. That's where the industry PE ratios come into play.Apr 3, 2022
What is Tesla's PE ratio?
Tesla PE ratio as of April 20, 2022 is 209.83. Please refer to the Stock Price Adjustment Guide for more information on our historical prices. Tesla Inc.
Is P E ratio a good indicator?
To many investors, the price-earnings ratio is the single most indispensable indicator for any stock purchase. Sadly, they are putting their trust in a myth. Surely, the P-E ratio is the most common way to gauge a stock's valuation, i.e., how its share price compares with the company's earnings.Apr 5, 2017
Why is Ebay PE so low?
EBAY's 12-month-forward PE to Growth (PEG) ratio of 1.69 is considered a poor value as the market is overvaluing EBAY in relation to the company's projected earnings growth due. EBAY's PEG comes from its forward price to earnings ratio being divided by its growth rate.Jul 23, 2021
Whats a good dividend yield?
What is a good dividend yield? In general, dividend yields of 2% to 4% are considered strong, and anything above 4% can be a great buy—but also a risky one. When comparing stocks, it's important to look at more than just the dividend yield.
Forward Price-to-Earnings
These two types of EPS metrics factor into the most common types of P/E ratios: the forward P/E and the trailing P/E. A third and less common variation uses the sum of the last two actual quarters and the estimates of the next two quarters.
Trailing Price-to-Earnings
The trailing P/E relies on past performance by dividing the current share price by the total EPS earnings over the past 12 months. It's the most popular P/E metric because it's the most objective—assuming the company reported earnings accurately.
Investor Expectations
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. 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.
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.
PEG Ratio
A P/E ratio, even one calculated using a forward earnings estimate, does not always show whether or not the P/E is appropriate for the company's forecasted growth rate. To address this limitation, investors turn to another ratio called the PEG ratio .
Example of a PEG Ratio
An advantage of using the PEG ratio is that considering future growth expectations, we can compare the relative valuations of different industries that may have very different prevailing P/E ratios. This facilitates the comparison of different industries, which tend to each have their own historical P/E ranges.
The Bottom Line
The price-to-earnings ratio (P/E) is one of the most common ratios used by investors to determine if a company's stock price is valued properly relative to its earnings. The P/E ratio is popular and easy to calculate, but it has shortcomings that investors should consider when using it to determine a stock's valuation.
