P/E ratio -ttm- calculation-P/B ratio-valuation
P/E ratio (PE) is an essential valuation tool for beginners, which is often used to measure the prices of individual stocks and markets. Although the calculation method of P/E ratio is simple, there is a lot of knowledge, such as the difference between historical P/E ratio and ttm, and how to judge the difference between P/E ratio, P/E ratio and market account ratio. MoneyHero will teach you right away.
What is the price-earnings ratio?
Price-earnings ratio (P/E) is an index used to measure stock equity, and its calculation method is as follows:
P/E ratio PE = share price/earnings per share (EPS)
Take the closing price of the Hong Kong Stock Exchange (00388) on April 7, 2020 as an example. The stock price is HK$ 243.80, the earnings per share is HK$ 7.49, and the P/E ratio is HK$ 243.80/HK$ 7.49 = 32.55 times.
That is to say, if investors buy HKEx at HK$ 243.80 now, and HKEx will earn HK$ 7.49 per share every year from now on, it will take 32.55 years to hold this stock for working capital.
TTM P/E ratio
As mentioned above, the P/E ratio is based on "share price" minus "earnings per share", in which "earnings per share" is taken from the performance report of the previous year, or fails to reflect the latest situation, because the company's business or financial situation may have different performances in the new year.
Listed companies usually publish the annual results of the previous year in March every year, just as the annual results of 20 19 will be published in March 2020. If you want to calculate the P/E ratio before the results are announced, you will only get 20 18 earnings per share, which is inevitably inaccurate.
Therefore, there is another method to calculate the price-earnings ratio TTM (trailing for 20 months), which is based on the earnings per share of the last 65,438+02 months, and can reflect more timely data and is not affected by seasonal factors.
But both of them are "historical price-earnings ratio". Investing in stocks buys the company's prospects, and the future profitability will most affect the stock price rise and fall. It is meaningless to look at historical figures only. Therefore, investors generally pay more attention to the "forecast price-earnings ratio" calculated by "forecast earnings per share" and pay attention to future earnings.
Price-income ratio
Generally speaking, the lower the P/E ratio, the more attractive it is; Conversely, the higher the P/E ratio, the more expensive it is. But what is the price-earnings ratio "flat" or "expensive"? Based on the closing price on April 7, 2020, the price-earnings ratio of Tencent (00700) is 36.07 times, and that of CLP Holdings (00002) is 43.37 times. Does this mean that CLP is more expensive than Tencent?
Of course not. When comparing P/E ratios, the following two methods should be adopted for evaluation:
First of all, compare the company's past and refer to the median price-earnings ratio of the past ten years to see what the current price-earnings ratio is. But only if other factors remain unchanged. If the company's business or business model changes significantly, it is difficult to measure the current price with historical price-earnings ratio.
Secondly, compared with similar companies, companies belonging to the same industry or sector are chosen because they face the same industry environment, that is, Domino's Group (0034 1) is compared with another catering stock, while Geely Automobile (00 175) is compared with the stock price of another car.
In addition, under normal circumstances, the price-earnings ratio of emerging industries or companies with short listing time is usually lower than that of blue chips, but this does not mean that this company is superior to blue chips. Investors should also weigh risks and returns, and consider factors such as industry prospects and company quality. However, some companies whose business is greatly affected by the economic cycle, such as commodity stocks, will have great fluctuations in profits, so it is not appropriate to use P/E ratio for investment consideration.
P/E ratio and market account ratio
Book yield PB = share price/book value per share
Similarly, the lower the P/B ratio, the flatter the stock. If the value is lower than 1, it means that the stock price is lower than the book value of the company and there is a discount. If the value is higher than 1, it means that the stock price is higher than the book value of the company and there is a premium. When comparing, you should also compare with companies in the same industry.
For some stocks, the price-to-book ratio is often used to measure their share prices, such as bank stocks and real estate stocks, because their profitability depends largely on how many assets they have, such as how many deposits and loans banks have, and how many properties and land developers own, which will directly affect their profitability.
In addition, if the company is going to be liquidated due to poor management, the book value can also reflect how much money the company can cash out after selling assets. With the support of assets, investors may feel more at ease.
Finally, investors should bear in mind that P/E ratio and P/B ratio are only one of the measures, and many factors should be integrated when making investment decisions, such as market conditions, industry prospects, management quality and so on.