11

See Berkshire Hathaway Inc. (BRK-A) (The Class A shares) and it will all be clear to you. IMHO, the quote for the B shares is mistaken, it used earning of A shares, but price of B. strange. Excellent question, welcome to SE. Berkshire Hathaway is a stock that currently trades for nearly US$140,000. This makes it difficult for individual investors to buy ...


10

Asking why the p/e was so high is best answered "because reported earnings were so low". Recall that the S&P500 bottomed in early March 2009 when the panic of the financial crisis reached exhaustion. As noted on the page you have linked, the reported p/e ratios are computed using reported earnings from the trailing twelve months. During those twelve ...


7

The EPS of Amazon for the last quarter of 2018 was $6.05. However, the P/E ratio is calculated using an annual number for earnings. Amazon’s earnings for 2018 was $20.14. (Source) $1673 / $20.14 = 83.07


6

I want to elaborate on some of the general points made in the other answers, since there is a lot that is special or unique to the biotech industry. By definition, a high P/E ratio for an industry can stem from 1) high prices/demand for companies in the industry, and/or 2) low earnings in the industry. On average, the biotech industry exhibits both high ...


6

If you look at the biotech breakdown, you'll find a lot of NAs when it comes to P/E since there are many young biotech companies that have yet to make a profit. Thus, there may be something to be said for how is the entire industry stat computed. Biotechnology can include pharmaceutical companies that can have big profits due to patents on drugs. As an ...


6

Usually their PE ratio will just be listed as 0 or blank. Though I've always wondered why they don't just list the negative PE as from a straight math standpoint it makes sense. PE while it can be a useful barometer for a company, but certainly does not tell you everything. A company could have negative earnings for a lot of reasons, some good and some ...


6

The mathematics site, WolframAlpha, provides such data. Here is a link to historic p/e data for Apple. You can chart other companies simply by typing "p/e code" into the search box. For example, "p/e XOM" will give you historic p/e data for Exxon. A drop-down list box allows you to select a reporting period : 2 years, 5 years, 10 years, all data. Below ...


5

Real Estate Investment Trusts (REITs) are required by law (at least in the U.S.) to maintain a dividend payout ratio of at least 90%. In other words, they are required to pay out at least 90% of their earnings as dividends. The dividend per share is almost the same as the earnings per share. As a result, the dividend yield (dividends per share / price per ...


5

Great question - one could write an entire book answering it. The P/E ratio is a reasonable (I don't agree with the subjective term "good") indicator of whether a particular company is over or undervalued compared to its past performance. Remember that P/E is a ratio - you get the same P/E value if the stock price doubles and the earnings also double, so it ...


5

Companies with stable, positive earnings that are not expected to grow are not worthless. 0% growth does not imply 0 P/E.


4

The idea here is to get an idea of how to value each business and thus normalize how highly prized is each dollar that a company makes. While some companies may make millions and others make billions, how does one put these in proper context? One way is to consider a dollar in earnings for the company. How does a dollar in earnings for Google compare to a ...


4

The price of a stock contains the incorporated price rise expectations in the future. So a smaller company has a greater chances of increasing its earning potential than a large cap. You don't expect Microsoft to grow on year on year like when it was just starting up. Hence people see greater potential to grow in a small company and bet on it. Eventually the ...


4

Imagine that I run Justin's Lawnmowing Inc. In the first year of operation I make $1,000. I spend $100 on gas and other consumables to run my lawnmowers. I also spend $1,200 on a new lawnmower for the business. From a cash perspective, the business lost $300 ($1,000 came in, $1,300 went out). From an accounting perspective, though, I have some ...


4

This would be for example a company with a share price of $90 and profits of $10 in the last year. If the company paid out all its profits as dividends, and the company made the exact same profits year after year, you would get $90 in 9 years, minus whatever taxes you have to pay. So after nine years, you would have the purchase price back, and still own the ...


4

I'm not sure I agree with the implication, but I believe he is saying that if EPS grows by 40%, and you find that the current price of the stock has a P/E ratio of 40, then that is "okay and reasonable." Let's say a stock was $10, and had a 10% EPS of $1 per share. Its P/E ratio would be 10. Assuming the EPS grew 40% to $1.4 per share, T. Rowe Price seems ...


3

The simple answer is technically bonds don't have earnings, hence no P/E. What I think the OP is really asking how do I compare stock and bond ETFs. Some mature stocks exhibit very similar characteristics to bonds, so at the margin if you are considering investing between 2 such investments that provide stable income in the form of dividends, you might want ...


3

Does the company see itself expanding into new product lines or new territories? What is the current predicted growth for the company's earnings for the next 5 years? These would generally be where I'd look for growth in companies. In the case of Costco, there may be a perception of the company as being a "safe" company as the market capitalization for the ...


3

You could not have two stocks both at $40, both with P/E 2, but one an EPS of $5 and the other $10. EPS = Earnings Per Share P/E = Price per share/Earnings Per Share So, in your example, the stock with EPS of $5 has a P/E of 8, and the stock with an EPS of $10 has a P/E of 4. So no, it's not valid way of looking at things, because your understanding of ...


3

Stock price = Earning per share * P/E Ratio. Most of the time you will see in a listing the Stock price and the P/E ratio. The calculation of the EPS is left as an exercise for the student Investor.


3

Without reading the source, from your description it seems that the author believes that this particular company was undervalued in the marketplace. It seems that investors were blinded by a small dividend, without considering the actual value of the company they were owners of. Remember that a shareholder has the right to their proportion of the company's ...


3

The P/E ratio is a measure of historic (the previous financial year) earnings against the current share price. If the P/E is high, this means that the market perceives a big increase in future earnings per share. In other words, the perception is that this is a fast growing company. Higher earnings may also equate to big increases in dividends and rapid ...


3

I believe the accepted answer is at best misleading, and at worst entirely incorrect. The P/E ratio is based on EPS, but for REITs, EPS is not very meaningful since it includes depreciation, which is a non-cash expense. The REIT dividends are paid from cash flow, not EPS. When you add back depreciation to EPS and subtract gains on the sale of property (...


3

Sort of, but not really. The measure just represents its share price divided by earnings per share for a relevant period such as the last financial year. It says nothing about future periods.


2

all other things being equal if you have two stocks, both with a P/E of 2, and one has an EPS of 5 whereas the other has an EPS of 10 is the latter a better purchase? What this really boils down to is the number of shares a company has outstanding. Given the same earnings & P/E, a company with fewer shares will have a higher EPS than a company with ...


2

Market cap should be share price times number of shares, right? That's several orders of magnitude right there...


2

Let's take a step back. My fictional company 'A' is a solid, old, established company. It's in consumer staples, so people buy the products in good times and bad. It has a dividend of $1/yr. Only knowing this, you have to decide how much you would be willing to pay for one share. You might decide that $20 is fair. Why? Because that's a 5% return on your ...


2

Robert Shiller has an on-line page with links to download some historical data that may be what you want here. Center for the Research in Security Prices would be my suggestion for another resource here.


2

A bond fund has a 5% yield. You can take 1/.05 and think of it as a 20 P/E. I wouldn't, because no one else does, really. An individual bond has a coupon yield, and a YTM, yield to maturity. A bond fund or ETF usually won't have a maturity, only a yield.


Only top voted, non community-wiki answers of a minimum length are eligible