P/E ratio refers to the ratio of stock price divided by EPS. Or divide the company's market value by the annual profit attributable to shareholders.
When calculating, the stock price usually takes the latest closing price, and if EPS is calculated according to the published EPS of the previous year, it is called historical price-earnings ratio; EPS estimated value used to calculate the estimated P/E ratio;
Generally, consistent estimation is adopted, that is, the average or median of the estimated values obtained by institutions that track the company's performance and collect the predictions of many analysts. What is a reasonable price-earnings ratio, there is no certain standard.
P/E ratio is the ratio of share price to earnings per share. The price-earnings ratio widely discussed in the market usually refers to the static price-earnings ratio, which is usually used as an indicator to compare whether stocks with different prices are overvalued or undervalued. 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. When a company grows rapidly and its future performance is promising, 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 and the comparison is effective.
P/E ratio is one of the most commonly used indicators to evaluate whether the stock price level is reasonable, and it is a valuable stock market indicator. On the one 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 company's official net profit by themselves.
Extended data
The P/E ratio reflects the present value of the company's profitability calculated according to the relevant discount rate, and its mathematical expression is P/E ratio. The formula for calculating the enterprise value according to P/E ratio should be:
Enterprise value = (P/E ratio) The sustainable income of the target enterprise.
The sustainable income of an enterprise refers to the net income obtained by the target company from the continuous operation after the merger (transaction), which is generally calculated on the basis of the assets retained by the target company.
There are usually two ways to calculate after-tax profit per share:
1. Fully diluted method: Divide all the after-tax profits predicted in the year of issuance by the total share capital after issuance, and directly get the after-tax profits per share.
2. Weighted average method: the calculation formula is as follows: after-tax profit per share (year) = all after-tax profits predicted in the year of issuance ÷ weighted average total share capital in the year of issuance = all after-tax profits predicted in the year of issuance ÷ [total share capital before issuance+current share capital ×( 12- number of issuance months)/12].
References:
Baidu Encyclopedia-P/E ratio
References:
Baidu Encyclopedia-Price-earnings ratio method