How do we analyze P/E ratios?

The price-to-earnings ratio, or P/E, the most widely used metric. Although it is quite a simple indicator to calculate, the P/E can be difficult to interpret. It can be extremely informative in some situations, while at other times it is difficult to parse. read more

Fortunately, financial analysts have developed a number of tools for such purposes of comparison. The price-to-earnings ratio, or P/E, the most widely used metric. Although it is quite a simple indicator to calculate, the P/E can be difficult to interpret. read more

Financial ratios are not constants of nature, so it is not like a company will automatically be a good buy if it is trading at a low P/E ratio (see my analysis of Gilead Sciences, which is trading at a very low P/E: Don't Trust Gilead's P/E Ratio) , nor is it automatically overvalued if it’s trading at a very high P/E ratio (e.g., Amazon). read more

Analysis. The price to earnings ratio indicates the expected price of a share based on its earnings. As a company’s earnings per share being to rise, so does their market value per share. A company with a high P/E ratio usually indicated positive future performance and investors are willing to pay more for this company’s shares. read more