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
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 ...
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 ...
The market is forward looking and share price tracks company earnings, thought not in a straight line linear correlation that you suggest. If a company reports earnings significantly higher than expected, its stock price tends to rise and vice versa.
Sometimes "companies beat earnings expectations yet they depreciate a bit." This is because there are ...
Imagine, as in some of the other answers, a company whose stock sells for $90 and whose earnings this year were $10. The resultant P/E is 9.
As has been stated, if the company pays out all of the $10 as a dividend and continues to do so for the next nine years, then you will recoup your entire $90 investment in nine years.
However, most companies do not ...
Fundamentally, the investor must decide how many years to look forward. A company is often valued at some-number-of-years times the current earnings.
But, for example, the company has $1 in earnings per-share and a 10% earnings growth and so include the 10% earnings growth by some means:
Valued at the current year's earnings along with four-year's forward ...
Price to book value (market cap/Book value) is actually a metric of:
PE x ROE which is equal to :
(price/earnings) x (earnings / equity) where equity = net book value (asset-libailbities)
therefore another way to write this is:
(ROE – g) / (r – g)
where g is the growth rate and r is the cost of equity/required rate of return.
If we assume a zero ...
Unfortunately, it's not that simple nor is it that efficient. There are a few things to keep in mind.
Stocks move based on perception not reality. Positive sentiment
causes people to buy and negative sentiment causes people to sell.
This leads into the next points.
A company can report great earnings and poor guidance for the
upcoming quarter. More often ...
Share price is total discounted value of future earnings (plus assets). A single quarter will be small portion of that. For instance, if the discount rate is 8%, then a single quarter is about 2% of the total value. So quarterly reports are not important for the current earnings as much as for the future outlook. Current earnings being 10% above expected ...
The price per earnings is the price divided by the yearly earnings.
The Earnings per Share of quarter 4 should could be a quarter of the total earnings. Add all of the Earnings per share for 4 quarters, and use that as the Earnings.
I know this question is very old, but I thought of sharing my two cents in case anybody came across it.
I would propose using the median instead of the mean. This would be a robust way against outliers. If some outlier companies are way more or way less than the rest, they would affect the mean, leading to wrong interpretations of your results.