That's because the price per share is high relative to the level of earnings a company generates. Yet a high P/E ratio isn't necessarily a deal-breaker. It can simply mean the market expects rapid earnings growth in the future and is willing to bid up the price in anticipation.
Full Answer
What does it mean when a company has a very high PE ratio?
overvaluedA 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. However, companies that grow faster than average typically have higher P/Es, such as technology companies.
Why are some PE ratios so high?
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 PE ratio for a stock?
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.
Is high PE ratio good for investors?
A higher PE suggests high expectations for future growth, perhaps because the company is small or is an a rapidly expanding market. For others, a low PE is preferred, since it suggests expectations are not too high and the company is more likely to outperform earnings forecasts.
Why is Zillow PE ratio so high?
In summary, Zillow is a good story and the high P/E ratio reflects the fact that the market believes the story. But, at this stage the data doesn't support the story. The market may or may not turn out to be right on this one - but the high P/E is a risk for investors.
Is 30 a good PE ratio?
P/E 30 Ratio Explained 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.
How Warren Buffett picks stocks?
He looks at each company as a whole, so he chooses stocks solely based on their overall potential as a company. Holding these stocks as a long-term play, Buffett doesn't seek capital gain, but ownership in quality companies extremely capable of generating earnings.
Is 80 a good PE ratio?
For instance, if the relative P/E ratio of a counter is 80%, when compared to the benchmark P/E levels, it means that the company's absolute ratio is lower than the industry. Likewise, Relative P/E ratio higher than 100% implies that a business has outperformed the benchmark or the industry in the given time frame.
What is Tesla's current PE ratio?
97.72Tesla's Earnings per Share (Diluted) for the trailing twelve months (TTM) ended in Mar. 2022 was $7.37. Therefore, Tesla's PE Ratio for today is 97.72.
What is Amazon PE ratio?
Amazon reported 50.38 in PE Price to Earnings for its fourth fiscal quarter of 2021.
Is 50 a good PE ratio?
Historically, a Nifty 50 PE ratio of more than 25 means the market is overvalued. Before the 2008 market crash, the Nifty PE ratio was 28.29. And we all know what happened next.
Is PE ratio a good indicator?
To many investors, the price-earnings ratio is the single most indispensable indicator for any stock purchase.
Welltower (WELL)
This is our short term rating system that serves as a timeliness indicator for stocks over the next 1 to 3 months. How good is it? See rankings and related performance below.
About PE Ratio (TTM)
Welltower Inc. has a trailing-twelve-months P/E of 25.76X compared to the REIT and Equity Trust - Other industry's P/E of 17.03X.
Is Aptiv Stock a Good Buy and Hold?
Formerly Delphi, Ireland-based auto parts company Aptiv ( NYSE:APTV) is trading at 66x this year’s EPS estimate. Flip the calendar to 2022 though, and the valuation looks more palatable at 37x earnings. The stark difference is because analysts are expecting earnings to be up 78% next year amid a recovery in the global auto industry.
Is ADTRAN Stock a Buy?
ADTRAN ( NASDAQ:ADTN), the maker of Internet access products for telecom carriers and businesses, is trading at 82x this year’s earnings. That seems like a steep price to pay for a company that is projected to grow its bottom line by a modest 18% in 2021. Fast forward a year, and things look much better.
Future Outlook
Revenues grew consistently from 2006 to 2021 at a rate of 8.35%. Its net profit margins improved from 2% to 2.56% in the same period. The company saw a spike in revenue growth in 2021 at a 17.41% increase year-over-year. Revenue growth will likely taper gradually through 2023 and return to normal.
Company Financials
Costco’s forward P/E ratio is up to 43.4x, an increase from 33x in February. Investors are shifting focus to consumer defensive stocks as uncertainty rises from additional COVID-19 variants. This sharp increase points to an overextended stock price growing faster than its earnings.
Valuation
Costco has improved margins consistently. Therefore price-to-cash flow has remained relatively flat while the stock price has risen, contrary to the P/E ratio increasing over the last year. With margin pressure on the horizon, P/E ratios will likely remain high but drop slightly due to overall revenue growth.
Risks
A slowdown in sales due to weakness in the economy presents a material risk to Costco. As government stimulus weans, consumers may limit spending and directly impact sales figures. The company also faces significant competition.
Analyst Consensus
Turning to Wall Street, Costco Wholesale has a Strong Buy consensus rating, based on 19 Buys, five Holds, and zero Sells assigned in the last three months. At $551.83, the average Costco price target implies 1.3% downside potential.
Final Thoughts
Costco is a giant company with an impressive track record. It continually improves earnings, and delivers consistent cash flows. Based on its track record of success, it deserves consideration from investors.
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