10 stock analysis ratios used by the pros
Price-to-Earnings Ratio
One of the most commonly used metrics to analyse and compare a stock’s valuation.
This ratio values stocks is in terms of their net earnings.
There are different variations of Price-to-Earnings (PE) to reflect the period of earnings. A trailing PE ratio uses the previous 4 quarter’s earnings whereas a projected PE ratio uses analyst estimates for the next 4 quarters of earnings.
Projected or forward PE ratios are widely used in analysis as it is most useful for forecasting future share prices.
PE ratios are effective at analysing stocks within the same sector but not so much for those in different industry groups. For example, technology stocks generally have a higher PE than utility stocks due to the perception of higher growth within the industry.
Investors are willing to buy stocks with a higher PE if there is a strong potential for growth and higher earnings in the future but usually see more value in those with a lower PE
Formula:
PE Ratio = Market Capitalisation/Net Income
or
PE Ratio = Market Value per Share/Earnings per Share
This document is purely education and is not investment advice. UK Investor Magazine accepts no liability for action taken on the back of reading this document.
Terms & Conditions: Please view the full terms and conditions of the UK Investor Magazine before reading this guide. This guide was compiled along side investment professionals to give you the best educational experience. The document you will receive is designed to increase your knowledge and understanding but is not specific investment advice. All investments carry risk. By submitting your details you agree to be contacted by UK Investor Magazine and our partners in relation to financial information and educational tools. We accept not responsibility and will not be held liable for any losses arising from submitting your details and receiving this guide.
Tips & Guides
DX’s lesson should be headed by other companies
The woes of parcel and freight delivery company DX (LON: DX.) could prove a wake...
The pandemic success stories ripe for investment
A new report by UK merchant payment provider Dojo has revealed how industries in the...
Sales you need to know about in order to win at Christmas shopping
Despite research claiming that the average British household has saved more than £2,000 during lockdown,...
Even at a 36% discount, Warren Buffett suggests IAG shares aren’t worth it
Heading up the FTSE 100 losses with a 25% dip in early morning trading, BA...
Five step plan to help your SME weather the COVID recession
It's official, we're in a recession, and new government restrictions on social gatherings and regional...
RBC WM Managing Director tells us how we can teach children money management
Writing on week sixteen of lockdown, RBC Wealth Management's Managing Director and Head of Relationship...
Fortune 500 data scientist backs tech rally but gold and bitcoin could see volatility
Trying to manage money during a global pandemic is challenge enough, but trying to position...
Atlantic Capital Markets see further upside in Greatland Gold
One of the hottest stocks on the market right now is Greatland Gold plc (LON:GGP).
Last...
Gold could hit $1800 but what does this say about market sentiment?
An elemental piece of knowledge within the world of finance is that, as an asset,...
Latest
New AIM admission: First step of building Electric Guitar into a digital advertising group
Electric Guitar switched from the standard list to AIM following the reverse takeover of 3radical...
Aquis weekly movers: Silverwood Brands share trading restored
Metals One expects the second stage payment from Gunsynd (LON: GUN) for the farm-in agreement...
AIM weekly movers: Touchstone Exploration merging with Trinity Exploration
Trinity Exploration & Production (LON: TRIN) has agreed a bid from fellow AIM-quoted Trinidad oil...
Refinancing creates opportunities for Smiths News
Swindon-based newspaper and magazines distributor Smiths News (LON: SNWS) has renegotiated its bank facilities and...
FTSE 100 extends record highs after goldilocks Non-Farm Payroll report
The FTSE 100 surged to fresh all-time record highs on Friday as a goldilocks Non-Farm...
BAE Systems shares: the trend favours further upside
BAE Systems shares have several trends going in their favour. Some are fundamental, and some...
Download the 10 Ratios guide for free below.