P/E ratio is one of the most commonly used indicators to evaluate whether the stock price level is reasonable. Divide the stock price by the annual earnings per share (the market value of a company divided by the annual profits attributable to shareholders can also get the same result). When calculating, the stock price is usually based on the latest closing price. For earnings per share, if calculated according to the earnings per share published last year, it is called historical price-earnings ratio, and if calculated according to the market's estimated earnings per share this year and next year, it is called future price-earnings ratio or forecast price-earnings ratio. Generally, consistent estimation is used to calculate EPS estimated P/E ratio, that is, the estimated average or median value obtained by the institutions that track the company's performance after collecting the forecasts of many analysts.
P/E ratio is an important reference index for individual stocks, stocks and the broader market. Any stock's P/E ratio significantly exceeds that of similar stocks or the broader market, and it needs sufficient reasons to support it, which is often inseparable from the key point of the company's rapid improvement in future profitability. A company enjoys a very high P/E ratio, indicating that investors generally believe that the company's earnings per share will grow rapidly in the future, so that the P/E ratio will drop to a reasonable level in a few years. Once the profit growth is not ideal, the motivation to support the high P/E ratio is unsustainable, and the stock price often falls sharply.
There is no certain standard for what is a reasonable price-earnings ratio, but for individual stocks, the price-earnings ratio of the same industry has reference value; No matter from the stock or the market, the historical average P/E ratio has reference value.
P/E ratio is a valuable stock market indicator, which is easy to understand and obtain, but it also has many shortcomings. For example, earnings per share, as the denominator, is calculated according to the prevailing accounting standards, but companies often make adjustments as needed. Therefore, in theory, the earnings per share announced by two companies with the same cash flow may be significantly different. On the other hand, investors often don't think that the profit figures calculated in strict accordance with accounting standards truly reflect the profitability of the company on the basis of going concern. Therefore, analysts often adjust the net profit of the company's formal formula by themselves, such as using EBITDA instead of net profit to calculate earnings per share.
In addition, as a molecule of P/E ratio, the market value of a company cannot reflect its liabilities (leverage). For example, two companies with the same market value of $65.438+0 billion and the same net profit of $65.438+0 billion have P/E ratios of 654.38+00. However, if Company A has a debt of $654.38 billion and Company B has no debt, then the P/E ratio cannot reflect this difference. Therefore, some analysts use "enterprise value (EV)"-market value plus debt minus cash-instead of market value to calculate P/E ratio. Theoretically, the ratio of enterprise value /EBITDA can avoid some shortcomings of pure P/E ratio.
In this paper, "attributable profit" and "net profit" can be used interchangeably, specifically, "attributable profit" and "income" should be used. Profit attributable to shareholders (common stock) is obtained by deducting profit attributable to minority shareholders and dividends from preferred shareholders from net profit. Minority shareholders refer to investors who hold minority shares in group subsidiaries.
[Edit] Calculation method of P/E ratio
P/E ratio = price of common stock per stock market/annual earnings of common stock per share.
The numerator in the above formula is the current price of the market per share, and the denominator can be the profit in the latest year or the predicted profit in the next year or years. P/E ratio is one of the most basic and important indicators to measure the value of common stock. It is generally believed that it is normal to keep the ratio between 20 and 30. If it is too small, it means that the stock price is low and the risk is small, so it is worth buying. If it is too large, it means that the stock price is high and risky, so be cautious when buying. But the stocks with high P/E ratio are mostly active stock, and the stocks with low P/E ratio may be unpopular.
Earnings per share are generally calculated according to the earnings of the past four quarters (current P/E ratio), but sometimes they are also calculated according to the earnings forecast of the next four quarters (forecast P/E ratio). The third method is to add the actual profit in the last two quarters to the predicted profit in the next two quarters, and calculate the P/E ratio according to this sum.
How much are investors willing to pay for each dollar of after-tax surplus? From the company's point of view, this ratio represents the company's right to the market price of shareholders' equity. In investment analysis, P/E ratio and earnings per share are very important. Because the price-earnings ratio can be multiplied by earnings per share to get the stock price, this relationship is often used to get the appropriate price of the stock, and the stock price often reflects investors' expected earnings for the company in the future. Usually, the lower the P/E ratio, the more valuable it is. As for the value, there is no certain theory. Generally, more experienced investors buy and sell between 10 and 15. However, in the actual investment, other objective factors that affect the stock price and income must still be considered.
In addition, China generally adopts the dynamic P/E ratio, and its calculation formula is based on the static P/E ratio and multiplied by the dynamic coefficient, namely1[(1+I) n], where I is the growth ratio of earnings per share and n is the duration of the enterprise's sustainable development. For example, the current share price of listed companies, 20 yuan, earned 0.38 yuan per share, compared with 0.28 yuan in the same period last year, with a growth rate of 35%, that is, I = 35%. The company can maintain this growth rate in the next five years, that is, n = 5 and the dynamic coefficient is. Accordingly, the dynamic P/E ratio is 1 1.74 times, that is, 52.63 (static P/E ratio: 20 yuan /0.38 yuan = 52) × 22.3%.
[Editor] The factors that determine the stock price
The stock price depends on market demand, that is, it depends on investors' expectations for the following items in disguise:
(1) Recent achievements and future development prospects of the enterprise;
(2) Newly launched products or services;
(3) the prospect of this industry.
Other factors that affect the stock price include the market atmosphere and the upsurge of emerging industries.
The P/E ratio relates the stock price to the profit, which reflects the recent performance of the enterprise. If the stock price rises, but the profit remains the same, or even falls, the P/E ratio will rise.
Generally speaking, the price-earnings ratio is:
0- 13: the value is underestimated.
14-20: that is, the normal level.
2 1-28: The value is overvalued.
28+: Reflecting the existence of a speculative bubble in the stock market.
[Editor] Price-earnings ratio of the stock market
1, dividend yield
Listed companies usually distribute part of their profits to shareholders as dividends. Divide the dividend per share of the previous year by the current share price, which is the current dividend rate. If the stock price is 50 yuan, and the dividend per share is 5 yuan last year, the dividend yield is 10%, which is generally high, reflecting that the P/E ratio is low and the stock value is undervalued.
Generally speaking, the dividend yield of stocks with extremely high P/E ratio (such as 100 times or more) is zero. Because when the P/E ratio is greater than 100 times, it means that it will take investors more than 100 years to recover their capital, and the stock value is overvalued, so they don't pay dividends.
2. Average price-earnings ratio
The average P/E ratio of US stocks is 14 times, which means the payback period is 14 years. 14 times the average annual yield of PE is 7% (114).
If a stock has a high P/E ratio, it means:
The market predicts that profits will increase rapidly in the future.
The enterprise has always made considerable profits, but a one-time special expenditure occurred in the previous year, which reduced the profits.
There was a bubble and stocks were sought after.
This enterprise has a special advantage, which ensures that it can record long-term profits under low-risk conditions.
There are limited stocks available in the market, and under the law of supply and demand, the stock price will rise. This makes the comparison of P/E ratio across time meaningless.
3. Calculation method
The P/E ratio calculated with different data has different meanings. The current P/E ratio is calculated by the earnings per share in the past four quarters, while the predicted P/E ratio can be calculated by the earnings in the past four quarters, or by the sum of the actual earnings in the last two quarters and the predicted earnings in the next two quarters.
4. Related concepts
The calculation of P/E ratio only includes common stock, excluding preferred stock.
From the P/E ratio, the growth rate of market income can be deduced. This indicator increases the factor of profit growth rate, which is mostly used in high-growth industries and new enterprises.
[Editor] What is a reasonable price-earnings ratio?
There is no certain criterion, but as far as individual stocks are concerned, the price-earnings ratio of peers has reference value; No matter from the stock or the market, the historical average P/E ratio has reference value.
P/E ratio is an important reference index for individual stocks, stocks and the broader market. Any stock's P/E ratio significantly exceeds that of similar stocks or the broader market, and it needs sufficient reasons to support it, which is often inseparable from the key point that the company's future earnings are expected to grow rapidly. A company enjoys a very high P/E ratio, indicating that investors generally believe that the company's earnings per share will grow rapidly in the future, so that the P/E ratio will drop to a reasonable level in a few years. Once the profit growth is not ideal, the motivation to support the high P/E ratio is unsustainable, and the stock price often falls sharply.
P/E ratio is a valuable stock market indicator, which is easy to understand and obtain, but it also has many shortcomings. For example, earnings per share, as the denominator, is calculated according to the prevailing accounting standards, but companies often make adjustments as needed. Therefore, in theory, the earnings per share announced by two companies with the same cash flow may be significantly different. On the other hand, investors often don't think that the profit figures calculated in strict accordance with accounting standards truly reflect the profitability of the company on the basis of going concern. Therefore, analysts often adjust the company's formal formula of net profit by themselves, such as using EBITDA instead of net profit to calculate earnings per share.
In addition, as a molecule of P/E ratio, the market value of a company cannot reflect its liabilities (leverage). For example, two companies with the same market value of $65.438+0 billion and the same net profit of $65.438+0 billion have P/E ratios of 654.38+00. However, if Company A has a debt of $654.38 billion and Company B has no debt, then the P/E ratio cannot reflect this difference. Therefore, some analysts use "enterprise value (EV)"-market value plus debt minus cash-instead of market value to calculate P/E ratio. Theoretically, the ratio of enterprise value /EBITDA can avoid some shortcomings of pure P/E ratio.
[Editor] Correctly treat the price-earnings ratio
In the stock market, when people completely use the P/E ratio to measure the stock price, they will find that the market becomes unreasonable: the P/E ratio of stocks is quite different, which is inconsistent with the bank interest rate; The higher the P/E ratio, the better the market performance. Is the P/E ratio meaningless? Actually, it's not. It's just that investors failed to correctly grasp the understanding and application of P/E ratio.
P/E ratio has overall guiding significance to the market.
To measure the P/E ratio, we should consider the characteristics of the stock market.
Look at the price-earnings ratio from a dynamic perspective
The high P/E ratio reflects investors' recognition of the company's growth potential to some extent, not only in China stock market, but also in mature voting markets such as Europe, America and Hongkong. From this point of view, it is not difficult for investors to understand why the price-earnings ratio of high-tech stocks is close to or exceeds 100 times, while the price-earnings ratio of motorcycle manufacturing and steel industry is only 20 times. Of course, this does not mean that the higher the price-earnings ratio of stocks, the better. The China stock market is still in its infancy, and the bookmakers arbitrarily raise the stock price, resulting in a very high P/E ratio and huge market risks. Investors should analyze the background and basic quality of the company and make a reasonable judgment on the price-earnings ratio.
P/E ratio It should be noted that the reasonable P/E ratio of different industries is different. Industries that are greatly affected by the economic cycle have a lower P/E ratio considering the fluctuation of profitability. For example, the price-earnings ratio of the iron and steel industry with developed market is 10~ 12 times, while the industry (beverage, etc.) is less affected by the economic cycle. ) is higher, generally 15~20 times.
[Edit] P/E ratio analysis [1]
High P/E ratio: When the P/E ratio of a stock is higher than 20: 1, it is considered as high (this is only empirical common sense rather than law). Historically, this high P/E ratio is the characteristic of growth company stocks. The price-earnings ratio of stable growth companies such as Microsoft, McDonald's and Coca-Cola may be slightly higher or slightly lower than 20 times, but in a big bull market (like the 1990s), their price-earnings ratio can be much higher than 20 times. The high P/E ratio reflects investors' trust in these companies. They believe that their efforts in new product development and market expansion may bring more and more returns to the shareholders of the company. In addition, some companies in the rapid development stage (like Amogan or PennyStock) may have a P/E ratio as high as 40 times, 90 times or even higher.
Some analysts believe that a high P/E ratio means that investors are optimistic about the company's long-term growth prospects. Therefore, they are willing to pay a relatively high price for today's stocks in order to profit from the company's future growth. Other analysts think that the high P/E ratio is a bad signal, which means that the company's stock value is overvalued and will soon fall back to the normal price level.
From these contradictory understandings, new investors can draw a definite conclusion: high P/E ratio usually means high risk, and high risk means high income.
If the company's performance growth meets expectations, even better, and exceeds expectations, then investors are likely to get considerable investment income from the company's stock price rise.
However, the expected growth is not always achieved. When a company fails to achieve its expected profit target, investors abandon the company's stock like rats fleeing from a shipwreck in the story. Snapping up has led to a sharp drop in share prices, and one of the characteristics of high P/E ratio stocks is the sharp price fluctuation.
Low P/E ratio: If the P/E ratio of a stock is lower than 10: 1, it is considered low. Low P/E ratio is usually the characteristic of mature companies (such as food companies) with little growth potential, as well as blue-chip stocks and companies that are facing or will face difficulties. If the low P/E ratio is caused by temporary market conditions such as sluggish sales, slow economic growth or bearish investors, the value of the stock may be underestimated, and the low P/E ratio is likely to be a sign of the buying price. But at the same time, the low P/E ratio may also be the first sign of bankruptcy of the company mentioned in Chapter 1 1. Before buying stocks with low P/E ratio, check the information service company's evaluation of the company's security and financial stability.
Investors who are used to reverse thinking believe that if the overall price-earnings ratio of the stock market is low, then the market has bottomed out, and in the medium and long term, it is likely to rebound. For such analysts, the low overall P/E ratio of the market is a positive sign, indicating that it is time to buy stocks.
Although the price-earnings ratio will eventually be used to evaluate the price of a company's stock, it should not be explained only by this indicator. It should be compared with the price-earnings ratio of companies in the same industry, with the past price-earnings ratio of company stocks, and with the price-earnings ratio of Dow Jones Industrial Average, Standard & Poor's 500 Company and Value Online Index as the overall market price-earnings ratio standard.
Market yield
Is the weighted rate of return of the market portfolio.
The bond market yield is the yield converted from the market price. For example, the coupon price of a bond is 100 yuan, and if the current market transaction price is 90 yuan, the market yield is 10%.