Ratio Analysis
Price to Earnings Ratio
- ("P/E Ratio")
= |
Market Value per
Share |
|
Earnings per Share |
One of the most widely
used ratios, it compares the current price with earnings to
see if a stock is over or under valued.
| Things to remember |
- Generally a high P/E ratio means
that investors are anticipating higher growth in the
future.
- The average market P/E ratio is
20-25 times earnings.
- Estimated
earnings can be used to calculate the projected P/E ratio.
- Companies that are losing money
do not have a P/E ratio.
|
[Click
on the image(s) above to see the financial statements] |
| For Cory's Tequila Co. |
$107.125 |
=
164.8 |
$0.65 |
Price-Earnings Analysis:
Sometimes referred to as the P/E multiple, the idea behind the P/E
ratio is that it is a prediction or more likely an expectation
of the company's performance in the future. The P/E ratio for
the overall market averages around 20, so as you can see Cory's Tequila Co. is much higher than this. In other words the market
is expecting big things from Cory's Tequila Co. in the future.
One thing to remember is that if a company has a low P/E ratio
it doesn't necessarily mean that it is undervalued. The P/E
doesn't dictate the stock price. In fact a low P/E could mean
that the company's earning are flat or growing slowing. They
could also be in financial trouble. On its own, the P/E ratio doesn't
tell a whole lot, but it's useful to compare the P/E ratios
of other companies in the same industry, or to the market in
general, or against the company's own historical P/E ratio.
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