Compare and Trade High PE Ratio Stocks
This page contains a list of companies with the highest P/E ratios. Alternatively, users can sort stocks by lowest P/E ratios by clicking on the chart item menu.
With unlimited access market beat subscription, it is possible to filter this list by MarketRank, Media Sentiment and Analyst Consensus.
Regular users can filter it by country, industry, and market capitalization.
Think of this chart as an overview of how companies are valued relative to their price/earnings ratio, which can help you spot potentially undervalued and overvalued opportunities.
About the P/E ratio
The price-to-earnings ratio (P/E ratio) is a company’s valuation ratio that measures its current stock price relative to its earnings per share. The price-to-earnings ratio is also sometimes referred to as a price multiple or earnings multiple. The P/E ratio is only one way to measure a stock, but it is a very popular method.
Many investors use the P/E ratio as a way to quickly compare companies in the same industry. The higher the P/E ratio, the more expensive the stock relative to its earnings. The P/E ratio can be calculated for any company whose shares are traded on the stock exchange. All you need is the current stock price and the company’s latest earnings per share (EPS) figure. The EPS number can be found on the company’s income statement.
Here is the formula for the P/E ratio: P/E ratio = Share price ÷ Earnings per share (EPS) For example, let’s say company XYZ is trading at $50 per share and it reported EPS of $5 in the last quarter. The P/E ratio of company XYZ would be 10 (($50 ÷ $5) = 10).
A higher P/E ratio means investors pay more for every dollar of income. A lower P/E ratio means investors pay less for every dollar of revenue.
The P/E ratio doesn’t tell you the whole story, however. A company with a high P/E ratio can be expected to grow its earnings faster than a company with a low P/E ratio.
A company with a low P/E ratio may be in a declining industry or simply be a value stock trading at a discount to its intrinsic value. The P/E ratio is just one metric to consider when evaluating a stock. Before making an investment decision, it is important to consider a company’s financial statements, business model, competitive advantages and growth prospects.
How to compare the P/E ratio
P/E ratios can also be used to compare the valuations of different companies. For example, if company A has a P/E ratio of 20 and company B has a P/E ratio of 10, this may be because company A is considered more valuable than company B. .
Other ratios that work with the P/E ratio
While there is no perfect ratio, certain ratios work well with the P/E ratio to provide a more complete picture of a company’s valuation.
The first ratio is the price-to-earnings growth (PEG) ratio. This ratio measures the P/E ratio of the company’s earnings growth rate. A lower PEG ratio indicates that the stock is undervalued along with its earnings growth.
The second ratio is the enterprise value to EBITDA ratio (EV/EBITDA). This ratio measures a company’s enterprise value (the market value of its equity plus the value of its debt) relative to its EBITDA (earnings before interest, tax, depreciation and amortization).
The third ratio is the price-to-book (P/B) ratio. This ratio measures the market price of a stock relative to the company’s book value (the value of its assets minus its liabilities).
The fourth ratio is the price-to-sales (P/S) ratio. This ratio measures the market price of the shares to the company’s sales.
The fifth ratio is the dividend yield. This ratio measures the annual dividend paid by a company in relation to its stock market price.
While no single ratio can tell you everything you need to know about a stock, these five ratios can give you a better idea of whether a stock is undervalued or overvalued.
What else to consider besides the P/E ratio
Profits are only part of the story when it comes to investing in stocks. Here are some other things to consider:
- Revenue and profit growth: A company’s share price will eventually follow the growth of its earnings. Therefore, it’s important to look at a company’s revenue and earnings growth over time to get an idea of where the stock price might be headed.
- Profit margins: A company’s profit margin is a good indicator of its competitiveness and efficiency.
- Debt levels: A highly indebted company is at risk of defaulting on its borrowings, which could trigger a sharp drop in its stock price.
- Cash flow: A company’s ability to generate cash flow is important because it indicates its ability to pay its bills and reinvest in its business.
- Analyst Notes: Analyst ratings can give you an idea of where a particular stock might go.
Common mistakes with the P/E ratio
Here are some of the most common mistakes made when using the P/E ratio:
- Ignore the difference between rear and front P/E ratios
One of the most common mistakes when using the P/E ratio is comparing apples to oranges, i.e. comparing a rear P/E ratio with a front P/E ratio.
A rolling P/E ratio is based on historical earnings and is more reflective of a company’s past performance. In contrast, a forecast P/E ratio is based on estimated earnings and is therefore more indicative of a company’s future prospects.
- Do not take income differences into account
Another common mistake made when using the P/E ratio is failing to take income differences into account. For example, a company that experiences higher profits due to one-time items, such as the sale of a subsidiary, should not be compared to a company that experiences more sustainable profit growth.
- Comparison of P/E ratios in different industries
Another mistake often made when using the P/E ratio is comparing P/E ratios between different industries. This is not an apples to apples comparison as different industries have different characteristics and growth prospects.
- Disregarding the impact of share buybacks
Another mistake made when using the P/E ratio is to ignore the impact of stock buybacks. When a company buys back its own stock, it reduces the number of shares outstanding, which increases earnings per share (EPS).
This means that a company with a high P/E ratio may not be as overvalued as it looks if it has been actively buying back its own shares.
- Disregard the impact of dilution
Another mistake made when using the P/E ratio is failing to consider the impact of dilution. Dilution can occur when a company issues new shares or when existing shareholders convert their shares into new shares.
This increases the number of shares outstanding and, all things being equal, reduces EPS. This means that a company with a low P/E ratio may be more overvalued than it looks if it has diluted its shareholders.
Disadvantages of using the P/E ratio
Despite the usefulness of the ratio, there are a few potential issues with using the P/E ratio as the primary investment metric:
1) The P/E ratio does not take into account the debt position of the company. A company with a high P/E ratio but a large amount of debt may be a riskier investment than a company with a lower P/E ratio but no debt.
2) The P/E ratio does not take into account the company’s cash position. A company with a high P/E ratio but a large amount of cash may be a safer investment than a company with a lower P/E ratio but no cash.
3) The P/E ratio is a retrospective measure. It only tells us how much investors were willing to pay for a company’s profits in the past. It does not necessarily indicate how much they will be willing to pay in the future.
4) The P/E ratio can be manipulated by management. For example, a company may choose to sell a division that is not performing well to increase its P/E ratio.
5) The P/E ratio is affected by accounting choices. For example, a company may recognize revenue when a product is shipped, even if the customer has not yet paid, to increase its P/E ratio.
6) The P/E ratio does not take into account the company’s growth prospects. A company with a high P/E ratio but low growth prospects may be riskier than a company with a lower P/E ratio but strong growth prospects.
7) The P/E ratio is affected by general market conditions. For example, when the overall market is doing well, companies with high P/E ratios may be considered more attractive investments than when the market is doing poorly.
8) The P/E ratio is affected by earnings variability. For example, a company with a high P/E ratio but volatile earnings may be a riskier investment than a company with a lower P/E ratio but more stable earnings.
How the P/E ratio can be manipulated
Although profits are a good indicator of a company’s profitability, they can be manipulated by management through accounting techniques. As a result, the P/E ratio does not always accurately measure a company’s stock price.
There are several ways to manipulate income. For example, companies may choose to recognize revenue when earned, rather than when received. This can artificially inflate short-term earnings and make the P/E ratio better than it otherwise would be. Businesses can also choose to defer spending, which has the opposite effect.
Additionally, companies can use accounting techniques to smooth profits. This can make earnings more consistent from period to period, even if the underlying business is not doing well. This can make the P/E ratio artificially low.
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