In some fundamental analysis, it can often be seen that the pe valuation of the stock has been put in place, and there is limited room for further increase in the later period. So what does this mean? The following is the meaning of pe valuation compiled by Bian Xiao, hoping to help everyone.
What does pe valuation mean?
Pe valuation is a ratio, the numerator is P (price, stock or stock price) and the denominator is E (earnings, company income), so it is what we call price-earnings ratio in our daily life. Generally speaking, a company's income is sustainable, so the company's external price should be multiple of the company's income. Therefore, high-growth companies have high pe, while stable companies such as consumption and industry have relatively low pe. When pe is 1, it means that the company's annual profit per share is equal to the stock price.
The simple understanding of pe valuation is that you buy at the current share price, and how many years will it take for the company to operate before you can fully earn back your investment. So the PE of some stocks is 200 times, which means that the company needs to work for 200 years to earn back the capital we invested. And if the pe of some stocks is 10 times, then this means that the company can earn back the capital we invested in as long as 10 years.
However, it should also be noted that the average pe of different industries is different, and the pe of companies and large enterprises in the same industry is generally higher than that of small enterprises in the same industry.
What does fund valuation mean?
There is no fixed standard for the pe value of the fund, that is, the fund valuation. Investors can only use historical pe to judge the current pe level of the fund. When the current valuation of the fund is lower than the historical average valuation, it means that the fund is at a low valuation; when the current valuation of the fund is higher than the historical average valuation, it means that the fund is at a high valuation.
Fund valuation refers to the process of calculating and evaluating the value of fund assets and liabilities at fair prices to determine the net asset value and net fund share value. It is equivalent to a forecast of the fund's net value. When the fund is overvalued, it shows that the fund has a bubble and the investment risk is high. When the fund is undervalued, it shows that the fund has investment value and high profit probability.
Stock valuation method
First, the price-earnings ratio valuation method
P/E ratio is called PE for short, so it is also called PE valuation method. P/E ratio refers to the ratio of stock price to earnings per share, which is a very simple but effective valuation method. The key is to determine the earnings per share. If a company's earnings per share in the next few years is a fixed value, then PE represents the annual line of this constant profit level, but in fact it is almost impossible for PE to remain unchanged. Because it has a great relationship with the macro-economy and the life cycle of enterprises, earnings per share is particularly important when we use PE for valuation. It can have two different meanings, one is the historical earnings per share, which is true, and the other is the forecast of future earnings per share, so the accuracy of the forecast is the most important. In fact, the change of earnings per share is decisive for stock investment.
There is another problem with the P/E ratio, that is, the earnings per share can only be the accounting profit in one stage. Because of the non-cash and one-off items in the schedule, it may truly reflect the financial situation of the enterprise, and other accounting assumptions about the cost may be manipulated artificially, so the P/E ratio valuation method is only applicable to those mature enterprises and listed companies with stable profits.
Second, the valuation method of market income growth rate
Market profit growth rate is abbreviated as PEG, which is the ratio between P/E ratio and long-term net profit growth rate. The growth rate of net profit can be replaced by the growth rate of pre-tax profit/operating interest/revenue, so the higher the P/E ratio, the more overvalued the stock is. Any stock must be linked to its growth, and the problem of adapting to the growth rate is actually the same as the price-earnings ratio. The market profit growth ratio can be used to evaluate companies that are profitable in different industry cycle stages, especially for high-growth enterprises such as science and technology, but its disadvantage is that it has no effect on negative-growth enterprises.
Third, the valuation method of P/B ratio
P/B ratio, referred to as PB, is the ratio between equity value and book value of net assets. We need to note that intangible assets need to be excluded when calculating the book value. The advantage of price-to-book ratio valuation method is that it can also solve the accounting problem of historical cost for financial institutions that need to adjust market prices, which is better than P/E ratio, because P/E ratio can only look at the problem of one accounting cycle. However, the price-to-book ratio valuation method also has certain limitations, and is generally suitable for financial industry, manufacturing industry and industries with relatively dense assets.
Fourth, the valuation method of market sales rate
Marketing ratio is abbreviated as PS, and the calculation method is PS (price-income ratio) = total market value/operating income = (stock price _ total number of shares)/operating income. Therefore, the advantage of the marketing rate is that the sales revenue is stable, the fluctuation is small, the operating income is not affected by the company's depreciation, inventory and non-recurring income and expenditure, and the income will not be negative, so there is no invalidity. It can be used as a good supplement to the price-earnings ratio valuation method, but it also has some shortcomings, that is, it cannot reflect the company's cost control ability. Even if the company's costs rise and profits fall, it still has no effect on the marketing rate, so the larger the business scale, the lower the marketing rate. In this case, the marketing rate index can only be used as an auxiliary reference index.
Verb (abbreviation of verb) enterprise value and earnings before interest and tax valuation method
The usage rate of this method is not high, and few people know it because it is not widely used. This method separates the core business performance of an enterprise from the impact of financial decisions and taxes, but the unadjusted earnings before interest and tax still include non-cash expenses (depreciation monthly amortization), one-off items, different accounting treatment methods among enterprises, etc., which affects the quality of comparative valuation, and often requires manual adjustment of earnings before interest and tax. Therefore, in order to use this method for valuation, listed companies must be profitable and can only be used in enterprises with low capital intensity, such as service industry.
The above five valuation methods have their own advantages and disadvantages. When we use them, it is best to combine two or more methods for comprehensive analysis, so as to get better results.