The P/E ratio ( price-to-earnings ratio ) of a stock (also called its "P/E", "PER", "earnings multiple," or simply "multiple") is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio. The P/E ratio has units of years, which can be interpreted as "number of years of earnings to pay back purchase price", ignoring the time value of money. In other words, P/E ratio shows current investor demand for a company share. The reciprocal of the PE ratio is known as the earnings yield. The earnings yield is an estimate of expected return to be earned from holding the stock if we accept certain restrictive assumptions
Definition
There are various P/E ratios, all defined as:
The price per share the numerator is the market price of a single share of the stock. The earnings per share in the denominator depends on the type of P/E:
- "Trailing P/E" or "P/E ttm": Earnings per share is the net income of the company for the most recent 12 month period, divided by number of shares outstanding. This is the most common meaning of "P/E" if no other qualifier is specified. Monthly earning data for individual companies are not available, so the previous four quarterly earnings reports are used and earnings per share is updated quarterly. Note, companies individually choose their financial year so the schedule of updates will vary.
- "Trailing P/E from continued operations": Instead of net income, uses operating earnings which exclude earnings from discontinued operations, extraordinary items (e.g. one-off windfalls and writedowns), or accounting changes. Note, longer-term P/E data such as Schiller's uses net earnings.
- "Forward P/E", "P/Ef", or "estimated P/E": Instead of net income, uses estimated net earnings over next 12 months. Estimates are typically derived as the mean of a select group of analysts (note, selection criteria is rarely cited). In times of rapid economic dislocation, such estimates become less relevant as "the situation changes" (e.g. new economic data is published and/or the basis of their forecasts become obsolete) more quickly than analysts adjust their forecasts.
The P/E ratio can alternatively be calculated by dividing the company's market capitalization by its total annual earnings.
For example, if a stock is trading at $24 and the earnings per share for the most recent 12 month period is $3, then stock A has a P/E ratio of 24/3 or 8. Put another way, the purchaser of the stock is paying $8 for every dollar of earnings. Companies with losses (negative earnings) or no profit have an undefined P/E ratio (usually shown as Not applicable or "N/A"); sometimes, however, a negative P/E ratio may be shown.
By comparing price and earnings per share for a company, one can analyze the market's stock valuation of a company and its shares relative to the income the company is actually generating. Stocks with higher (and/or more certain) forecast earnings growth will usually have a higher P/E, and those expected to have lower (and/or riskier) earnings growth will in most cases have a lower P/E. Investors can use the P/E ratio to compare the value of stocks: if one stock has a P/E twice that of another stock, all things being equal (especially the earnings growth rate), it is a less attractive investment. Companies are rarely equal, however, and comparisons between industries, companies, and time periods may be misleading.
Since 1900, the average P/E ratio for the S&P 500 index has ranged from 4.78 in Dec 1920 to 44.20 in Dec 1999. The average P/E of the market varies in relation with, among other factors, expected growth of earnings, expected stability of earnings, expected inflation, and yields of competing investments. For example, when US treasuries yield high returns, investors pay less for a given earnings per share and P/E's fall.
Determining share prices
Share prices in a publicly traded company are determined by market supply and demand, and thus depend upon the expectations of buyers and sellers. Among these are:
- The company's future and recent performance, including potential growth;
- Perceived risk, including risk due to high leverage;
- Prospects for companies of this type, the market sector.
By dividing the price of one share in a company by the profits earned by the company per share, you arrive at the P/E ratio. If earnings per share move proportionally with share prices the ratio stays the same. But if stock prices gain in value and earnings remain the same or go down, the P/E rises.
The earnings figure used is the most recently available, although this figure may be out of date and may not necessarily reflect the current position of the company. This is often referred to as a 'trailing P/E', because it involves taking earnings from the last four quarters
Other related measures
The forward P/E uses the estimated earnings going forward twelve months.
P/E10 uses average earnings for the past 10 years. There is a view that the average earnings for a 20 year period remains largely constant, thus using P/E10 will reduce the noise in the data.
The P/E ratio relates to the equity value. A similar measure can be defined for real estate, see Case-Shiller index .
PEG ratio is obtained by dividing the P/E ratio by the annual earnings growth rate. It is considered a form of normalization because higher growth rate should cause higher P/E.
The similar ratio on the enterprise value level is EV/EBITDA Enterprise value divided by the EBITDA .
Present Value of Growth Opportunities (PVGO) is another alternative method for stock valuation. Present value of growth opportunities is calculated by finding the difference between price of equity with constant growth and price of equity with no growth.
where
Since the Price/Earnings (P/E) Multiple is 'Price per share / Earnings per share' it can be written as
Thus, as PVGO rises, the P/E ratio rises.
Earnings yield
Main article: Earnings yieldThe reverse (or reciprocal) of the P/E is the E/P, also known as the earnings yield. The earnings yield is quoted as a percentage, and is useful in comparing a stock, sector, or the market's valuation relative to bonds.
The earnings yield is also the cost to a publicly traded company of raising expansion capital through the issuance of stock. Its computed as (EARNINGS PER SHARE/MARKET PRICE PER SHARE)
Price/Dividend Ratio
Publicly traded companies often make periodic quarterly or yearly cash payments to their owners, the shareholders, in direct proportion to the number of shares held. According to US law, such payments can only be made out of current earnings or out of reserves (earnings retained from previous years). The company decides on the total payment and this is divided by the number of shares. The resulting dividend is an amount of cash per share.
Just as P/E is the ratio of price to earnings, the Price/Dividend ratio is the ratio of price to dividend.
Dividend Yield
Main article: Dividend yieldThe dividend yield is the dividend paid in the last accounting year divided by the current share price: it is the reciprocal of the Price/Dividend ratio.
If a stock paid out $5 per share in cash dividends to its shareholders last year, and its price is currently $50, then it has a dividend yield of 10%.
Historically, at severely high P/E ratios (such as over 100x), a stock has NO (0.0%) or negligible dividend yield. With a P/E ratio over 100x, and supposing a portion of earnings is paid as dividend, it would take over a century to earn back the purchase price. Such stocks are extremely overvalued, unless a huge growth of earnings in the next years is expected.
Relationship between measures
Several of these measures are related to each other: given price, earnings, and dividend, there are 6 possible ratios, which come in reciprocal pairs:
- P/E ratio and earnings yield are reciprocals;
- P/D ratio and dividend yield are reciprocals;
- Dividend payout ratio (DPR) = Dividend/EPS, while the reciprocal is dividend cover (DC) = EPS/Dividend.
They are related by the following equations:
- P/E = P/D * DPR and P/D = P/E * DC;
- taking reciprocals, earnings yield = dividend yield * DC and dividend yield = earnings yield * DPR.
Interpretation
The average U.S. equity P/E ratio from 1900 to 2005 is 14 (or 16, depending on whether the geometric mean or the arithmetic mean, respectively, is used to average). An oversimplified interpretation would conclude that it takes about 14 years of earnings to recoup the price paid for a stock .
Normally, stocks with high earning growth are traded at higher P/E values. From the previous example, stock A,
Historical Quotes: Charting Tools for Looking Up a Security's Exact ...
... charting and research site, offering historical stock quotes and charting tool for looking up a security's exact closing price. ... Intraday data provided by Interactive Data Real ...
Historical Stock Prices | Stock Price Data | Stock Market Decisions
With historical stock prices and technical analysis you are making investment decisions that make you money. learn why here.
Stock Prices
Archives Stock Prices Please enter the Company Name or Scrip ID or Scrip Code to search for its historical prices
Historical data - Accor
Accor share price (1) (in EUR) Number of shares outstanding as of 12/31 Market capitalisation as of 12/31 (in EUR billion) Dividend Yield as of 12/31
Facts About: HISTORICAL STOCK PRICES | STOCKPRICES.CA | STOCKPRICES ...
How do I find historical stock prices? On the internet, there are many ... up is free) and get access to historical data on each ticker as well as many other useful stock-picking ...
Free Historical Stock Prices - Quotes - Market Data
Free stock market data - historical stock prices ... ...Free Historical Stock Prices - Market Data - Quotes
Stock Market Data: Stock Market Trends and Historical Stock Price Data ...
Access stock market data generated by various participants in the Canadian capital markets through one source - TMX Datalinx. View stock market trends, historical stock price data ...
FREE End of Day Stock Quote Data and Historical Stock Prices
Free end of day stock market data and historical quotes for many of the world's top exchanges including NASDAQ, NYSE, AMEX, TSX, OTCBB, FTSE, SGX, HKEX, and FOREX.
Cell Therapeutics, Inc. (CTIC) Historical Stock Prices & Data ...
CTIC Historical Prices – Find historical stock prices and historical data for Cell Therapeutics, Inc.(CTIC) at NASDAQ.com.
Free Historical Stock Price Data on Boeing, Historical Stock Prices on ...
Free End of Day Price Data on Boeing Co. ... Receive a complete Daily History of this Stock You can receive a complete daily file of this issue since 1970 or stock inception.