What Is a Price-to-Earnings Ratio?

Price Earnings Ratio (referred to as P / E or PER), also known as "Peer to Earnings Ratio", "Stock Price Earnings Ratio" or " Market Earnings Ratio " The price-earnings ratio is the ratio of the stock price divided by earnings per share (EPS). Or divide the company's market value by the annual profit attributable to shareholders.

Basic Information

Chinese name

P / E ratio

Foreign name

Price Earnings Ratio, referred to as P / E or PER ^[2]

P / E ratio is also called P / E ratio.

P / E ratio is divided into static P / E ratio and dynamic P / E ratio. The static price-earnings ratio is widely talked about and is usually referred to by people. However, we should pay more attention to and study the dynamic price-earnings ratio. The widely discussed price-earnings ratio in the market usually refers to the static price-earnings ratio, which brings many blind spots and misunderstandings to investors' decisions. After all, the past does not fully explain the future, and investing in stocks is more about the future! The dynamic P / E ratio is calculated based on the static P / E ratio and multiplied by the dynamic coefficient. The coefficient is 1 ÷ (1 + i) ⁿ , where i is the growth ratio of the company's earnings per share, and n is the duration of the company's sustainable development. For example, if the company can maintain this growth rate for 5 years in the future, that is, n = 5, the dynamic coefficient is 1 ÷ (1 + 35%) = 22%. Correspondingly, the dynamic price-earnings ratio is 11.6 times, namely: 52 (static price-earnings ratio: 20 yuan ÷ 0.38 yuan = 52) × 22%. Compared with the two, there is a big difference. I believe that ordinary investors will be shocked when they see it, and suddenly realize. The dynamic price-earnings ratio theory tells a simple and simple truth that investment in the stock market must choose a company that has sustainable growth. Therefore, it is not difficult to understand why asset restructuring has become the eternal theme of the market, and some companies with poor performance have become market dark horses under the support of substantial restructuring themes.

How to analyze static P / E ratio and dynamic P / E ratio? If a company receives better earnings per share due to non-operating income such as investment income, which causes its static P / E ratio for that year to appear quite attractive; if a company obtains high returns in that year due to the use of liquid funds for stock trading, Or, some assets gained a considerable transfer income during the year, then for some companies that are not particularly large, these are likely to significantly improve their performance levels, but this is more from non-operating income The breakthrough growth brought by it needs to be viewed dialectically. Non-operating income brings high income to the company. This is a good thing. In the short term, it will undoubtedly have an exciting and stimulating effect on the company, but such income is accidental and unsustainable. There is no asset transfer, and stock investment itself has uncertainty. No one dare to absolutely guarantee how much income a year. Therefore, non-operating benefits are achievable but not desirable.

The factors that affect the intrinsic value of the price-earnings ratio can be summarized as follows:

Dividend payout ratio b. Obviously, the dividend payout ratio appears in both the numerator and denominator of the P / E ratio formula. In the numerator, the larger the dividend payout ratio, the higher the current dividend level, and the larger the P / E ratio; but in the denominator, the larger the dividend payout ratio, the lower the dividend growth rate, and the smaller the P / E ratio. Therefore, the relationship between the P / E ratio and the dividend payout ratio is uncertain.

Rf of risk-free assets. As the yield of risk-free assets (usually short-term or long-term Treasury bills) is the opportunity cost of the investor, it is the minimum return expected by the investor, the risk-free interest rate rises, the investor's required return on investment increases, and the rise in the discount rate leads to the price-earnings ratio decline. Therefore, the relationship between the price-earnings ratio and the return on risk-free assets is reversed.

(3) The expected return rate of market portfolio assets, Km. The higher the expected return on market portfolio assets, the greater the additional returns that investors require to compensate for the average risk that exceeds risk-free returns, the greater the return on investment required by investors, and the lower the price-earnings ratio. Therefore, the relationship between the price-earnings ratio and the expected return on market portfolio assets is reversed.

Beta without financial leverage . An enterprise without financial leverage has only operational risk and no financial risk. The beta of a company without financial leverage is a measure of its operating risk. The larger the beta coefficient, the greater the operating risk of the enterprise and the greater the return on investment required by investors. The lower the P / E ratio. Therefore, the relationship between price-earnings ratio and beta without financial leverage is reversed.

Leverage D / S and equity multiplier L. Both reflect the degree of corporate debt. The greater the degree of leverage, the greater the equity multiplier. The two move in the same direction and can be collectively referred to as the leverage ratio. In the denominator of the price-earnings ratio formula, both the subtracted number and the subtracted number include the leverage ratio. Among the impaired (return on investment), the leverage ratio rises, corporate financial risk increases, the return on investment increases, and the price-earnings ratio declines; in the decrease (dividend growth rate), the leverage ratio increases, the dividend growth rate increases, and the deduction The increase leads to an increase in the price-earnings ratio. Therefore, the relationship between the P / E ratio and the leverage ratio is uncertain.

Corporate income tax rate T. The higher the corporate income tax rate, the more obvious the advantages of corporate debt management, the lower the return on investment required by investors, and the greater the price-earnings ratio. Therefore, the relationship between the P / E ratio and the corporate income tax rate is positive.

Net profit margin M. The larger the net sales margin, the stronger the company's profitability, the greater the development potential, the greater the dividend growth rate, and the greater the price-earnings ratio. Therefore, the relationship between price-earnings ratio and net sales margin is positive.

Asset turnover rate TR. The greater the asset turnover rate, the stronger the company's ability to operate assets, the greater the development potential, the greater the dividend growth rate, and the greater the price-earnings ratio. Therefore, the relationship between the price-earnings ratio and the asset turnover ratio is positive.

Factors determining stock prices

The stock price depends on market demand, that is, the disguise depends on investors' expectations for the following:

Enterprise performance and future development prospects

New product or service

Prospects of the industry

Other factors affecting stock prices include market sentiment,

It is worth pointing out that the reciprocal of the P / E ratio is the current stock

Analysts often adjust the company's officially announced net profit on their own. As a numerator of the P / E ratio, the company's market value cannot reflect the company's debt (leverage) level. But if Company A had $ 1 billion in debt and Company B had no debt, the P / E ratio would not reflect this difference. Therefore, some analysts take "enterprise value (EV)"-

Few people in the market do not pay attention to the price-earnings ratio of stocks. This measure is simple and intuitive.

Is it true that the lower the price-earnings ratio of a stock, the better? Not necessarily, the price-earnings ratio is just the stock price on a certain day and the stock

A-share average price-earnings ratio

P / E ratio is used to judge the order

In the stock market, when people fully apply

The common understanding of stock price-earnings ratio is the stock price divided by earnings per share

Although the indicator of price-earnings ratio has its limitations and defects, it is

In the international market,

P / E ratio is the price per share

PE corruption and excessive price-earnings ratios are caused by supply and demand. They are caused by more money and fewer listed companies. He said that in the past two years or so, more than 4,000 funds have emerged in China, with an average size of less than 70 million yuan, and many places have set up a listing office to encourage companies to go public. Very limited.