The calculation formula of P/E ratio is: P/E ratio = total market value/net profit. Among them, the total market value refers to the sum of the market values of all the current shares of the company, that is, the overall evaluation of the company's value by the market; Net profit refers to the company's net income in a certain period, which can also be called net profit.
Price-earnings ratio analysis;
1. Industry comparison
The price-earnings ratio is not only related to the company's performance, but also has a great relationship with the industry. Companies in different industries have different business models and profitability, so there is a huge difference in P/E ratio. For example, the price-earnings ratio of the technology industry is often relatively high, while the price-earnings ratio of the manufacturing industry is relatively low. The comparison of P/E ratios of companies in the same industry can also reflect the performance of leading companies and help investors make judgments.
2. Development prospects
The future development prospect of the company is one of the important factors that determine its P/E ratio. If a company has a good business prospect and the market expects a high level of future profits, its P/E ratio will also rise accordingly. On the contrary, if a company's future development is subject to factors such as market or economic situation, the market expects its profitability to be low and its P/E ratio will be low.
3. Company size
The size of the company also affects its P/E ratio. Generally speaking, larger companies have more resources and opportunities, their future profits are more predictable, and the market often has higher expectations for them, so the P/E ratio is relatively high.
4. Market situation
The overall market situation is also one of the important factors that determine the price-earnings ratio. In a bull market, the overall share price will rise, and at this time, the market's profit expectation for the company will also increase, and the P/E ratio will also increase accordingly. In the bear market, stock prices generally fall, and the market has low expectations for corporate profits and low P/E ratio.
5. Financial stability
The financial stability of a company is an important index to measure an enterprise. If a company's financial situation is stable and its operating performance has been in a good state, the market's expectation of its future profitability is also quite high, and its P/E ratio is relatively high. On the contrary, if a company's financial situation is unstable, or there are major operational risks, the market's expectation of its profitability will decrease accordingly, and the P/E ratio will tend to decline.
Conclusion:
P/E ratio is an important reference index to evaluate the value of a company's stock investment, which is not only related to the company's performance, but also related to the industry, development prospects, company scale, market conditions, financial stability and other factors. Investors need to make a comprehensive judgment on the basis of a comprehensive understanding of the above factors in order to formulate a more reasonable investment strategy.