What is the price-earnings ratio?
Today, let's talk about the most familiar stranger in this investment field.
1. What is the price-earnings ratio?
When we buy stocks, we can't buy them at full price. We have to see if they are cheap or expensive.
How to measure?
We need to use some indicators to make judgments.
P/E ratio is the most commonly used valuation index, and there is no one.
The price-earnings ratio is calculated by dividing the total market value of the company by the company's profit.
The formula is: PE = p/e.
If a company's total market value is 1 billion and its profit this year is 1 billion, then its P/E ratio is 1 billion = 10 times.
P/E ratio means that if you want to buy this company, you have to pay 1 yuan profit 10 yuan.
If this company earns 1 100 million a year, it will take 1 0 years for you to pay for it.
The full name of P/E ratio should be multiple P/E ratio. Yes, it's a multiple, not a rate.
If someone tells you that the price-earnings ratio of this stock is 20,
It means that the price-earnings ratio of this stock is 20 times, not 20%.
This nonsense naming method often appears in the investment community. Get a word you don't understand,
In fact, connotation is a very simple meaning.
The reciprocal of the price-earnings ratio, that is, the company's profit divided by the market value, gives this thing called "profit rate".
The formula is: profitability = price-earnings ratio.
This profit rate is really a rate.
In the same example, if a company has a total market value of 654.38 billion yuan and a profit of 654.38 billion yuan this year,
Then its profit margin is 1 billion/1 billion = 10%.
It stands to reason that the existence of profit rate and return rate is relatively easy to understand. Why does the investment community use the most P/E ratio?
The main reason is that the P/E ratio reflects the difference more clearly.
For example, for two companies, the profit margin of Company A is 2%, and that of Company B is 3%. At first glance, there is not much difference.
If converted into price-earnings ratio, it will be 50 times that of Company A and 33.3 times that of Company B,
This difference is more, at first glance, fat and thin.
Therefore, P/E ratio students have become the number one online celebrity in the investment field.
2. What is the profit growth rate?
You may have some doubts when you see this:
Why should I spend 10 billion on a company that only spends 1. 10 billion a year?
If the company goes bankrupt the next year, I will be miserable.
This reflects a major premise of investing in listed companies:
What needs to be increased is the profit of this company.
People earn 1 billion this year,10.20 billion next year and10.40 billion the year after.
I will return to my original position in six years, and it will be beautiful to earn money in the future.
The faster the profit growth, the higher the valuation given by the market.
If profits do not increase but decrease, the market will give a low valuation.
What about the profit growth rate?
It's actually relatively simple. Primary school
For example, you earn 1 billion this year and10.2 billion next year.
The profit growth rate of this company is (1.2-1)1= 20%.
This is the growth rate of one year, but the capital market generally depends on the growth rate of many years.
Let's assume that the profit of a company will increase by 10% next year, 20% in the following year and 30% in the following year.
Three-year cumulative growth rate (110%) * (120%) * (130%) =1.716.
Then open the root of 1.7 16 three times, which is roughly equal to 1. 197.
Its annual growth rate is1.197-1=19.7%, which is about 20%.
We get that the annual profit growth rate of the company in the next three years is about 20%.
3. How does the profit growth rate correspond to the P/E ratio?
If the profit growth rate of that company is 20%, how reasonable is its P/E ratio?
Under the premise of 3% risk-free interest rate, the profit growth rate is 20%.
The corresponding reasonable price-earnings ratio is about 25 times.
If it is less than 17 times, it is very underestimated.
More than 32 times, it is overestimated.
Between them, the calculation is reasonable.
Like CSI 300, if the profit growth rate is around 10%, how reasonable is its P/E ratio?
The profit growth rate is 10%, and the corresponding reasonable P/E ratio is about 15 times.
Less than 12 times is underestimated;
More than 17 times is overestimated.
I've compiled a form, you can have a look.
So when you buy stocks or funds, you have to do two things.
First, judge the future profit growth rate of what you want to buy.
For example, I estimate that the future profit growth rate of this index fund can reach 20%.
Second, you have to look at the price-earnings ratio of its valuation.
Or underestimate the reasonable state before considering buying.
If it is overvalued, you have to wait.
For the valuation of index funds, you can see the valuation table in my article at 8: 00 every morning.
It's all done, just use it directly.
Related question and answer: What is the normal P/E ratio? It is normal for the general P/E ratio to be between 20 and 30. The dividend yield of stocks with extremely high P/E ratio (such as more than 100 times) 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. If the P/E ratio of a company's stock is too high, then the price of the stock is frothy and its value is overvalued. When a company grows rapidly and its future performance is promising, when comparing the investment value of different stocks with P/E ratio, these stocks must belong to the same industry, because the company's earnings per share are close and the comparison is effective. Since the yield of risk-free assets (usually short-term or long-term treasury bonds) is the opportunity cost of investors and the lowest yield expected by investors, the risk-free interest rate rises, the return on investment required by investors rises, and the discount rate rises, resulting in a decline in P/E ratio. Therefore, the relationship between P/E ratio and risk-free asset yield is reversed. 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. 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. P/E ratio is the abbreviation of "market P/E ratio", that is to say, the ratio of share price to earnings per share is one of the most commonly used indicators to evaluate whether the stock price level is reasonable. Generally speaking, when the net profit of a normally profitable company remains unchanged, the P/E ratio is about 10 times, because the reciprocal of 10 times is 10%( 10% is also the profit rate, which we will talk about in detail later), which just corresponds to the return on investment of ordinary investors who hold stocks for a long time. This information does not constitute any investment advice. Investors should not use this information to replace their independent judgment or make decisions only based on this information. If they operate by themselves, please pay attention to position control and risk control. How to choose stocks with P/E ratio: 1? The formula of P/E ratio is stock price/expected annualized earnings per share. This indicator is relatively simple. It is an index used to measure the cost of restoring the stock price and the most commonly used index to analyze the company's fundamentals. 2. Suppose a company's P/E ratio is 50 times. Assuming that the current share price and the expected annualized income level remain unchanged, it will take you 50 years to recover the cost. 3. We can't simply think that a low P/E ratio is a good company. Because this P/E ratio cannot be used in all industries and companies, it is relatively stable in relatively stable, transparent and excellent stocks, such as blue-chip stocks with excellent performance, second-tier blue-chip stocks and growth stocks. As for technology stocks and theme stocks, the performance changes greatly every year, and the P/E ratio can't reflect the future well, so the effect is not good.