Price/income ratio

Price-income ratio

P/E ratio refers to the ratio of stock price to earnings per share in a survey period (usually 12 months). Investors usually use this ratio to estimate the investment value of a stock, or use this indicator to compare the stocks of different companies. P/E ratio is usually used as an indicator to compare whether stocks with different prices are overvalued or undervalued. However, it is not always accurate to measure the texture of a company's stock with price-earnings ratio. It is generally believed that if the price-earnings ratio of a company's stock is too high, then the price of the stock is in a bubble and its value is overvalued. However, when a company grows rapidly and its future performance growth is very promising, the current high P/E ratio of stocks may just accurately measure the value of the company. It should be noted that when comparing the investment value of different stocks with P/E ratio, these stocks must belong to the same industry, because the company's earnings per share are close at this time, and the comparison is effective.

As of July 3, 2007, the P/E ratio of A shares in Shanghai and Shenzhen stock markets was 85. 19.

Calculation method

Earnings per share is calculated by dividing the net income of the enterprise in the past 12 months by the total number of shares issued and sold. The lower the P/E ratio, it means that investors can buy stocks at a lower price to get a return.

Suppose the market price of a stock is 24 yuan and the earnings per share in the past 12 months is 3 yuan, then the P/E ratio is 24/3=8. The stock is regarded as having a P/E ratio of 8 times, that is, every 8 yuan paid can share the profit of 1 yuan.

Investors calculate the price-earnings ratio, which is mainly used to compare the values of different stocks. Theoretically, the lower the P/E ratio of a stock, the more worth investing. It is not reliable to compare the P/E ratios of different industries, different countries and different time periods. It is of practical value to compare the P/E ratios of similar stocks.

Factors that determine stock prices.

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

(1) Recent achievements and future development prospects of the enterprise

(2) Newly launched products or services

(3) the prospect of this industry

Other factors that affect the stock price include the market atmosphere and the upsurge of emerging industries.

The P/E ratio relates the stock price to the profit, which reflects the recent performance of the enterprise. If the stock price rises, but the profit remains the same, or even falls, the P/E ratio will rise.

Generally speaking, the price-earnings ratio is:

0- 13: the value is underestimated.

14-20: that is, the normal level.

2 1-28: The value is overvalued.

28+: Reflecting the existence of a speculative bubble in the stock market.

Price-earnings ratio of stock market

Dividend yield

Listed companies usually distribute part of their profits to shareholders as dividends. Divide the dividend per share of the previous year by the current share price, which is the current dividend rate. If the stock price is 50 yuan, and the dividend per share is 5 yuan last year, the dividend yield is 10%, which is generally high, reflecting that the P/E ratio is low and the stock value is undervalued.

Generally speaking, the dividend yield of stocks with extremely high P/E ratio (such as 100 times or more) is zero. Because when the P/E ratio is greater than 100 times, it means that it will take investors more than 100 years to recover their capital, and the stock value is overvalued, so they don't pay dividends.

Average price-earnings ratio

The average P/E ratio of US stocks is 14 times, which means the payback period is 14 years. 14 times the average annual yield of PE is 7% (114).

If a stock has a high P/E ratio, it means:

(1) The market predicts that the future profit will increase rapidly.

(2) The enterprise has always had considerable profits, but the one-time special expenditure occurred in the previous year, which reduced the profits.

(3) There is a bubble and stocks are sought after.

(4) The enterprise has special advantages, which ensures that it can record long-term profits under low-risk conditions.

(5) There are limited stocks to choose from in the market. Under the law of supply and demand, the stock price will rise. This makes the comparison of P/E ratio across time meaningless.

Calculation method

The P/E ratio calculated with different data has different meanings. The current P/E ratio is calculated by the earnings per share in the past four quarters, while the predicted P/E ratio can be calculated by the earnings in the past four quarters, or by the sum of the actual earnings in the last two quarters and the predicted earnings in the next two quarters.

related notion

The calculation of P/E ratio only includes common stock, excluding preferred stock.

From the P/E ratio, the growth rate of market income can be deduced. This indicator increases the factor of profit growth rate, which is mostly used in high-growth industries and new enterprises.

What is a reasonable price-earnings ratio?

There is no certain criterion, but as far as individual stocks are concerned, the price-earnings ratio of peers has reference value; No matter from the stock or the market, the historical average P/E ratio has reference value.

P/E ratio is an important reference index for individual stocks, stocks and the broader market. Any stock's P/E ratio significantly exceeds that of similar stocks or the broader market, and it needs sufficient reasons to support it, which is often inseparable from the key point that the company's future earnings are expected to grow rapidly. A company enjoys a very high P/E ratio, indicating that investors generally believe that the company's earnings per share will grow rapidly in the future, so that the P/E ratio will drop to a reasonable level in a few years. Once the profit growth is not ideal, the motivation to support the high P/E ratio is unsustainable, and the stock price often falls sharply.

P/E ratio is a valuable stock market indicator, which is easy to understand and obtain, but it also has many shortcomings. For example, earnings per share, as the denominator, is calculated according to the prevailing accounting standards, but companies often make adjustments as needed. Therefore, in theory, the earnings per share announced by two companies with the same cash flow may be significantly different. On the other hand, investors often don't think that the profit figures calculated in strict accordance with accounting standards truly reflect the profitability of the company on the basis of going concern. Therefore, analysts often adjust the net profit of the company's formal formula by themselves, such as using EBITDA instead of net profit to calculate earnings per share.

In addition, as a molecule of P/E ratio, the market value of a company cannot reflect its liabilities (leverage). For example, two companies with the same market value of $65.438+0 billion and the same net profit of $65.438+0 billion have P/E ratios of 654.38+00. However, if Company A has a debt of $654.38 billion and Company B has no debt, then the P/E ratio cannot reflect this difference. Therefore, some analysts use "enterprise value (EV)"-market value plus debt minus cash-instead of market value to calculate P/E ratio. Theoretically, the ratio of enterprise value /EBITDA can avoid some shortcomings of pure P/E ratio.

Several problems that should be paid attention to when comparing the P/E ratios of different markets horizontally.

P/E ratio is a very rough indicator. Considering comparability, it is meaningful to compare the P/E ratios of the same index at different stages, but we should be especially careful when comparing the P/E ratios of different markets horizontally.

★( 1) composite index and composite index price-earnings ratio, component index price-earnings ratio, component index price-earnings ratio. The sample stocks of the composite index include all the stocks in the market (except pt stocks in Shanghai and Shenzhen stock markets), and the P/E ratio is generally high, while the sample stocks of the component index are carefully selected, usually with large average share capital and good average performance, so their P/E ratio is relatively low. The P/E ratio of foreign stocks we often see is mostly the P/E ratio of component indexes. If we compare them with the P/E ratio of our composite index, we have made a conceptual mistake.

★(2) The P/E ratio should be linked to the benchmark interest rate. The benchmark interest rate is the reference coefficient of people's investment return rate, and it also reflects the capital cost level of the whole society. Generally speaking, there is a positive correlation between the reciprocal of the benchmark interest rate and the average price-earnings ratio of the stock market when other factors remain unchanged. If the basic interest rate is low, the reasonable price-earnings ratio can be higher; If the benchmark interest rate is high, the reasonable P/E ratio should be lower. At present, the rediscount rate of the Bank of China is 2.97%, the one-year savings deposit yield is 1.80%, the federal funds rate in the United States is 1.75%, and the rediscount rate of the Federal Reserve is 1.25%. There is little difference in benchmark interest rates between China and the United States, but vertically, the current benchmark interest rate in China is very low. According to authoritative research, according to China's current price level and the country's future proactive fiscal policy and moderate monetary policy orientation, China may lower interest rates again.

★(3) The price-earnings ratio should be linked to equity. The average P/E ratio is related to both the total share capital and the circulating share capital. The smaller the total share capital and circulating share capital, the higher the average P/E ratio will be (Stansted Management Consulting China Company, 200 1), and vice versa, whether in China or the west. According to statistics, on June 6th, 2006, the arithmetic average P/E ratio of 770 sample stocks (excluding PT stocks, ST stocks, loss-making stocks and 5438+0 stocks with earnings less than 0.05 yuan per share in the middle of 2006) in China Shanghai and Shenzhen stock markets was 29.43 times, of which 100 had the smallest total share capital. The arithmetic average P/E ratio of 100 listed companies with the largest total share capital is only 19.82 times, and the former is 2. 16 times that of the latter. In the United States, the average price-earnings ratio of small-cap stocks is several times higher than that of large-cap stocks, and the market price-earnings ratio of Nasdaq is higher than that of NYSE, which is related to the equity factor.

Therefore, when looking at the average price-earnings ratio of a market, we should also consider the structure of listed companies in this market. If it is a market dominated by small equity companies, its reasonable P/E ratio should be higher. If we don't consider the share capital composition of listed companies in the stock market, we can't explain why, even if the original price level of listed companies remains unchanged, as long as we go to Sinopec and then go to PetroChina, China Mobile and CNOOC, the average P/E ratio will drop by more than ten times, and the P/E ratio will drop to the so-called "reasonable area". In fact, on February 365,438+0,5438, 2006, the P/E ratio of Shanghai A-share index dropped to 37.59 times. If Sinopec does not go public, this number will increase sharply to 43.365438 times +0.

★(4) The P/E ratio should be linked to the ownership structure. The P/E ratio is also related to the ownership structure. If the shares are fully circulated, the P/E ratio will be lower; If the shares are not fully circulated, the P/E ratio of the tradable shares will be higher. The reason is that if the total value of listed companies remains unchanged and shares are divided into tradable shares and non-tradable shares, the liquidity of assets will increase the value of assets (liquidity premium). Generally speaking, the price per share of tradable shares is naturally higher than that of non-tradable shares. The lower the price of non-tradable shares, the higher the price of tradable shares, and the result is that the average price-earnings ratio of tradable shares is higher than that of non-tradable shares. The smaller the proportion of tradable shares in China's share capital, the larger the price difference between tradable shares and non-tradable shares, and the higher the average P/E ratio of tradable shares.

At present, in the China market, non-tradable shares account for two-thirds of the total share capital, so it is normal that the P/E ratio is higher when the tradable shares are not in circulation.

★(5) The P/E ratio should be linked to growth. At the same price-earnings ratio of 20 times, the market where the average annual profit of listed companies increases by 7% is far more valuable than the market where the average annual profit of listed companies increases by 3%. According to the classic stock intrinsic value evaluation model, as shown in formula (1). Where V is the intrinsic value of the stock, D is the dividend per share to be paid indefinitely in the future, K is the yield to maturity, and G is the fixed growth rate of each dividend. From the formula (1), it can be seen that, assuming other factors remain unchanged, growth has a great influence on the intrinsic value of stocks, and thus on the market price and average P/E ratio.

V = D. (left+right)

k–g( 1)

For a simplified example, suppose that the net profit of listed companies grows with the economy, and the average annual economic growth rate in China is 7% and that in the United States is 3%, then the average intrinsic value of China stock is 2.42 times that of the United States, and the reasonable P/E ratio of China stock market is 2.42 times that of the United States. From the perspective of growth, the price-earnings ratio of Nasdaq index is relatively high, and it makes sense that the average price-earnings ratio of emerging market countries is relatively high.

★(6) P/E ratio is related to some institutional factors, such as the selectivity of residents' investment methods, investment ideas, and a country's system (culture, tradition, customs, habits, etc. ), foreign exchange control and other institutional factors are all related to the average price-earnings ratio.

(7) The average P/E ratio of China stock market should also consider the issue price. Before 1997, referring to the interest rate level in China at that time, the management strictly controlled the IPO pricing, and generally the IPO P/E ratio should not exceed 15 times. In order to take care of remote areas, the price-earnings ratio of stocks like Zhu Jin in Tibet is about 20 times. Later, in order to promote the market-oriented reform of the securities market, the control of issuance pricing was gradually relaxed. Mindong Electric Power reached 88 times P/E ratio when it was issued in 2000, and the average P/E ratio of ordinary shares remained at 40 to 50 times. The issue price-earnings ratio can be forty or fifty times. How can the average P/E ratio of the secondary market be abnormal? Theoretically, the higher the P/E ratio, the more funds raised, the stronger the development potential and profitability of listed companies, and the higher the gold content of listed companies' book assets, which is invisible from the static P/E ratio. Because the static P/E ratio can't fully reflect the influence of the higher P/E ratio in recent years, it is normal that the average P/E ratio in the secondary market is slightly higher than that in previous years.

Defects of P/E ratio in judging the investment value of stock market

The price-earnings ratio used to measure whether the average price of the stock market is reasonable has some inherent shortcomings:

★( 1) The defects of the calculation method itself. The choice of sample stocks of constituent stock index is arbitrary. The average price-earnings ratio calculated by various countries and markets is related to the sample stocks selected. If the sample is adjusted, the average P/E ratio will also change. Even in the comprehensive index, there is a problem that the impact of loss-making stocks and meager profit stocks on P/E ratio is discontinuous. For example, the P/E ratio of Shanghai A shares on February 3 1 and 200 1 is 37.59 times. If Sinopec had no profit1665438+54 million yuan in 2000, which was 0.0 1 yuan, the P/E ratio of A shares in Shanghai stock market would rise to 48.53 times. Ironically, if Sinopec loses money, it will be excluded from the calculation of P/E ratio, and the P/E ratio of A shares in Shanghai stock market will drop to 43.3 1 times, which is really "the more losses, the lower the P/E ratio".

(2) The price-earnings ratio is very unstable. With the cyclical fluctuation of the economy, the earnings per share of listed companies will fluctuate greatly, so will the average price-earnings ratio calculated in this way, so as to adjust the stock market, which will inevitably bring stock market turmoil. 1932 at the lowest point of the us stock market, the price-earnings ratio was as high as 100 times. Squeezing the stock market bubble on this basis will be absurd and dangerous. In fact, that year was the best time to enter the market in the history of the United States for a hundred years.

★(3) Earnings per share is only the influencing factor of stock investment value. Investors don't have to look at the price-earnings ratio when picking stocks. It is difficult for you to arbitrage according to the price-earnings ratio, and it is also difficult to say that a stock has investment value or no investment value according to the price-earnings ratio. It is puzzling that the P/E ratio explains the value of individual stocks so poorly that it is regarded as the most important basis to measure whether the stock market has investment value. In fact, the value or price of a stock is determined by many factors, and it is unscientific to use the price-earnings ratio as an indicator to judge whether the stock price is too high or too low.

Correctly treat price-earnings ratio

In the stock market, when people completely use the P/E ratio to measure the stock price, they will find that the market becomes unreasonable: the P/E ratio of stocks is quite different, which is inconsistent with the bank interest rate; The higher the P/E ratio, the better the market performance. Is the P/E ratio meaningless? Actually, it's not. It's just that investors can't correctly grasp the understanding and application of P/E ratio.

1. P/E ratio is of overall guiding significance to the market.

2. The P/E ratio should consider the characteristics of the stock market.

3. Look at the price-earnings ratio from a dynamic perspective

The high P/E ratio reflects investors' recognition of the company's growth potential to some extent, not only in China stock market, but also in mature voting markets such as Europe, America and Hongkong. From this perspective, it is not difficult for investors to understand why the price-earnings ratio of high-tech stocks approaches or exceeds 100 times, while the price-earnings ratio of motorcycle manufacturing and steel industry is only 20 times. Of course, this does not mean that the higher the price-earnings ratio of stocks, the better. The China stock market is still in its infancy, and the bookmakers arbitrarily raise the stock price, resulting in a very high P/E ratio and huge market risks. Investors should analyze the background and basic quality of the company and make a reasonable judgment on the price-earnings ratio.

An indicator to measure the stock market bubble

In addition to the price-earnings ratio, there are the following indicators to measure whether there is a bubble or investment value in a stock market as a whole.

(1) Dividends support the stock price level.

(2) Average share price.

(3) Average marketing rate.

(4) Average price-to-book ratio

(5) Market cost.

Dynamic price-earnings ratio and static price-earnings ratio

The dynamic P/E ratio is calculated by multiplying the static P/E ratio by the dynamic coefficient, and it is1(1+I) n, where I is the growth ratio of earnings per share and n is the duration of sustainable development of the enterprise. For example, the current share price of listed companies, 20 yuan, earned 0.38 yuan per share, compared with 0.28 yuan in the same period last year, with a growth rate of 35%, that is, I = 35%. The company can maintain this growth rate in the next five years, that is, n = 5 and the dynamic coefficient is1(1+35%) 5. Accordingly, the dynamic P/E ratio is 1 1.6 times? Namely: 52 (static P/E ratio: 20 yuan /0.38 yuan = 52) × 22%. Compared with the two, the difference is so great that I believe ordinary investors will be surprised and suddenly realize. The theory of dynamic P/E ratio tells us a simple and profound truth, that is, companies with sustainable growth must be chosen to invest in the stock market. Therefore, it is not difficult for us to understand why asset restructuring has become an eternal theme in the market, and some companies with poor performance have become dark horses in the market under the support of the theme of substantive restructuring.

P/E ratio = market price/earnings per share

If your first question can be answered mechanically by the above formula, then the target price is directly proportional to earnings per share. This is what most textbooks teach.

But is this really the case? In fact, as long as you ask the price-earnings ratio formula in depth, you will know that the formula itself is problematic: First, the market price adopts the current stock price, but what is the earnings per share? Listed companies publish an annual report every year. All you know this year is its income last year. What's the point of dividing the current price by last year's income?

So now I can answer your second question, which is why the price-earnings ratio of the steel stocks you bought is very low, but it doesn't go up. It is because the steel industry has been at the peak of the boom cycle since 2003, so the income in recent years is very good, which greatly lowers the price-earnings ratio. Does the low P/E ratio mean that your stock will definitely go up? Not necessarily.

Because speculating in stocks is the expectation and future of stocks, everyone expects that the prosperity of the steel industry has passed, and it is difficult to maintain such a high profit in the future, so the static P/E ratio calculated by your earnings per share last year does not explain the problem.

But the average P/E ratio of other industries does vary greatly. For example, the average high-tech stocks have a high P/E ratio because people have good expectations for their future growth, while some traditional cyclical industries, such as metals and steel, have relatively low P/E ratios.

In fact, the P/E ratio is often used in the case of mutual comparison. Because different industries in China are more difficult, it is more meaningful to refer to the pricing standards under different value systems than abroad.

For example, in foreign countries, the average price-earnings ratio of steel is 13, while in China, the average price is 8, so it is generally considered to be underestimated.

But is it underestimated? This is a matter of personal judgment and values.

Finally, the net assets per share has nothing to do with the price-earnings ratio. Related to the price-to-book ratio, the price-to-book ratio equals the market price divided by the net assets per share.