Price to Earnings (P/E) Ratios by Industry | Eqvista (2023)

FAQs

What is a good PE ratio by industry? ›

One sector might have P/E ratios in the 30s and consider that a good number, while other industries could have typical P/E ratios in the 20s or even 10s. “The S&P 500 is around 26,” Braun-Bostich says. “That's about 62% higher than average.”

An industry PE ratio can be calculated dividing its market capitalisation by its total net profit. For example, if the P/E ratio of a company is 10x (10 times) it means that an investor has to pay Rs 10 to earn Rs 1 hence lower the ratio, cheaper is the valuation and vice versa.

Companies that grow faster than average typically have higher P/Es, such as technology companies. A higher P/E ratio shows that investors are willing to pay a higher share price today because of growth expectations in the future. The average P/E for the S&P 500 has historically ranged from 13 to 15.

To give you some sense of what average for the market is, though, many value investors would refer to 20 to 25 as the average P/E ratio range.

March 13, 2020. 2 min read. PE is Price to earning ratio. Industry PE is the average price-to-earning ratio of a particular sector or industry. It's used as a benchmark to compare the PE of a stock to the PE of an entire industry.

As can be seen from the table above, stock A has a higher PE ratio than the sector average which results in a positive output. When the output is positive it is said that the stock is trading at a premium to the sector.

A P/E ratio of N/A means the ratio is not available or not applicable for that company's stock. A company can have a P/E ratio of N/A if it's newly listed on the stock exchange, such as in the case of an initial public offering (IPO). A company can have a P/E ratio of N/A if it has negative earnings per share (EPS).

Significance of PE ratio

Say, a company has a negative PE ratio. This means it has been incurring losses. You might assume that investing in such an entity is not a good idea.

What does it mean when a company has a very high PE ratio give examples of industries in which you believe high PE ratios are justified? ›

A high P/E ratio could mean that a company's stock is overvalued, or that investors are expecting high growth rates in the future. Companies that have no earnings or that are losing money do not have a P/E ratio because there is nothing to put in the denominator.

A higher PE suggests high expectations for future growth, perhaps because the company is small or is an a rapidly expanding market. For others, a low PE is preferred, since it suggests expectations are not too high and the company is more likely to outperform earnings forecasts.

A P/E of 30 is high by historical stock market standards. This type of valuation is usually placed on only the fastest-growing companies by investors in the company's early stages of growth. Once a company becomes more mature, it will grow more slowly and the P/E tends to decline.

To many investors, the price-earnings ratio is the single most indispensable indicator for any stock purchase. Sadly, they are putting their trust in a myth. Surely, the P-E ratio is the most common way to gauge a stock's valuation, i.e., how its share price compares with the company's earnings.

Historically, a Nifty 50 PE ratio of more than 25 means the market is overvalued.

What Is "Overvalued"? An overvalued stock has a current price that is not justified by its earnings outlook, known as profit projections, or its price-earnings (P/E) ratio. Consequently, analysts and other economic experts expect the price to drop eventually.

A high P/E ratio might indicate that a stock's price is high relative to its earnings and potentially suggests that the stock is overvalued. On the other hand, a low P/E ratio might mean that a stock is undervalued.

The most common way to value a stock is to compute the company's price-to-earnings (P/E) ratio. The P/E ratio equals the company's stock price divided by its most recently reported earnings per share (EPS). A low P/E ratio implies that an investor buying the stock is receiving an attractive amount of value.

What is the best PE to buy a stock? ›

So, what is a good PE ratio for a stock? A “good” P/E ratio isn't necessarily a high ratio or a low ratio on its own. The market average P/E ratio currently ranges from 20-25, so a higher PE above that could be considered bad, while a lower PE ratio could be considered better.

The price to earnings ratio is calculated by taking the latest closing price and dividing it by the most recent earnings per share (EPS) number. The PE ratio is a simple way to assess whether a stock is over or under valued and is the most widely used valuation measure. Tesla PE ratio as of September 30, 2022 is 96.94.

An investor or an analyst should be concerned about the negative P/E ratio when a company consistently reports a negative P/E ratio for longer periods of time for say, 5 years in a row. This indicates that the company is not in good financial health.

Tesla's gross profit margins are better than industry peers. That's one reason Tesla gets a premium valuation. Jonas also believes that Tesla will sell more stuff such as insurance and self driving software that can generate recurring sales. That's new for the auto industry and has the potential to add to profits.

A high P/E typically means a stock's price is high relative to earnings. A low P/E indicates a stock's price is low compared to earnings and the company may be losing money. A consistently negative P/E ratio run the risk of bankruptcy.

The result is assigned a rating of 1 to 99, with 99 being best. An EPS Rating of 99 indicates that a company's profit growth has exceeded 99% of all publicly traded companies in the IBD database.

Using the Justified P/E Ratio

If the justified P/E is greater than the forward P/E, then the stock is likely undervalued/underpriced. Alternatively, if the justified P/E is lower than the stock's forward P/E, all other things being equal, the stock is considered overvalued at its current price.

The most common use of the P/E ratio is to gauge the valuation of a stock or index. The higher the ratio, the more expensive a stock is relative to its earnings. The lower the ratio, the less expensive the stock. In this way, stocks and equity mutual funds can be classified as “growth” or “value” investments.

P/E Ratio is calculated by dividing the market price of a share by the earnings per share. P/E Ratio is calculated by dividing the market price of a share by the earnings per share. For instance, the market price of a share of the Company ABC is Rs 90 and the earnings per share are Rs 9 . P/E = 90 / 9 = 10.

The price to earnings ratio is calculated by taking the latest closing price and dividing it by the most recent earnings per share (EPS) number. The PE ratio is a simple way to assess whether a stock is over or under valued and is the most widely used valuation measure. Tesla PE ratio as of September 30, 2022 is 96.94.

Which company has the best PE ratio? ›

To cite an actual example, on August 2021, the average P/E ratio of the financial services industry was 7.60.

Tesla's gross profit margins are better than industry peers. That's one reason Tesla gets a premium valuation. Jonas also believes that Tesla will sell more stuff such as insurance and self driving software that can generate recurring sales. That's new for the auto industry and has the potential to add to profits.

30, 2022.

P/E ratio as of October 2022 (TTM): -71.5

According to Snowflake's latest financial reports and stock price the company's current price-to-earnings ratio (TTM) is -71.4832. At the end of 2021 the company had a P/E ratio of -133.

Many investors will say that it is better to buy shares in companies with a lower P/E because this means you are paying less for every dollar of earnings that you receive. In that sense, a lower P/E is like a lower price tag, making it attractive to investors looking for a bargain.

The popular opinion about stocks with high P/E ratios is that they are excellent investment options since investors are willing to pay more for a smaller share in the company's earnings. Hence, they presume this to be an indicator of an optimistic investor perception towards the stock.

In my piece on Lloyds TSB (NYSE:LYG) , I wrote that banks usually trade at lower price-to-earnings ratios to the market, because they are considered riskier investments as a result of their high use of debt.

What is Goldman Sachs PE ratio? ›

The PE ratio is a simple way to assess whether a stock is over or under valued and is the most widely used valuation measure. Goldman Sachs PE ratio as of September 30, 2022 is 6.63.

Calculate it by dividing Net Credit Sales or Total Sales by the Average Accounts Receivable. Find the Average Accounts Receivable by adding the beginning and ending accounts receivable numbers and dividing the sum by 2.

In May 2009, the P/E ratio reached a staggering 123.73x, the highest ratio in United States history. This was primarily due to the depressed earnings during the “Great Recession” and has been the only instance since 1970 in which the P/E ratio reached triple digits.

Key Points. Tesla bears have long claimed the stock is overvalued. Based on the PEG ratio, it's actually cheaper than the average Dow stock.

The P/E ratio shows how much growth investors expect from companies they invest in. A high ratio indicates that investors are paying much more per share than the company is earning, which is common in new businesses with a lot of investment capital, like tech start-ups.