To help us all better understand the nuances and f
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Posted On: 05/06/2016 7:40:19 PM
To help us all better understand the nuances and facets of EPS and P/E Ratios, here's some info from Investopedia:
EPS is most often derived from the last four quarters. This form of the price-earnings ratio is called trailing P/E, which may be calculated by subtracting a company’s share value at the beginning of the 12-month period from its value at the period’s end, adjusting for stock splits if there have been any. Sometimes, price-earnings can also be taken from analysts’ estimates of earnings expected during the next four quarters. This form of price-earnings is also called projected or forward P/E. A third, less common variation uses the sum of the last two actual quarters and the estimates of the next two quarters.
P/E Ratio is more complicated. As I indicated in my previous post, P/E ratio can be derived from what a shareholder is willing to pay for the stock, based on PERCEPTION of future earnings (from Investopedia):
BREAKING DOWN 'Price-Earnings Ratio - P/E Ratio'
In essence, the price-earnings ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings. This is why the P/E is sometimes referred to as the multiple because it shows how much investors are willing to pay per dollar of earnings . If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings.
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. A low P/E can indicate either that a company may currently be undervalued or that the company is doing exceptionally well relative to its past trends.
This is why I mentioned FITX previously, where they had zero earnings, yet an insanely high P/E Ratio...based upon expected FUTURE earnings.
For anyone is interested, here's the link to the entire article: http://www.investopedia.com/terms/p/price-earningsratio.asp
EPS is most often derived from the last four quarters. This form of the price-earnings ratio is called trailing P/E, which may be calculated by subtracting a company’s share value at the beginning of the 12-month period from its value at the period’s end, adjusting for stock splits if there have been any. Sometimes, price-earnings can also be taken from analysts’ estimates of earnings expected during the next four quarters. This form of price-earnings is also called projected or forward P/E. A third, less common variation uses the sum of the last two actual quarters and the estimates of the next two quarters.
P/E Ratio is more complicated. As I indicated in my previous post, P/E ratio can be derived from what a shareholder is willing to pay for the stock, based on PERCEPTION of future earnings (from Investopedia):
BREAKING DOWN 'Price-Earnings Ratio - P/E Ratio'
In essence, the price-earnings ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings. This is why the P/E is sometimes referred to as the multiple because it shows how much investors are willing to pay per dollar of earnings . If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings.
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. A low P/E can indicate either that a company may currently be undervalued or that the company is doing exceptionally well relative to its past trends.
This is why I mentioned FITX previously, where they had zero earnings, yet an insanely high P/E Ratio...based upon expected FUTURE earnings.
For anyone is interested, here's the link to the entire article: http://www.investopedia.com/terms/p/price-earningsratio.asp
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