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| Price
to Earnings Ratio - P/E Ratio |
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Market
Value per Share |
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Earnings
per Share |
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One
of the most widely used ratios, it compares the current price with
earnings to see if a stock is over or under valued.
Things
to remember |
- Generally
a high P/E ratio means that investors are anticipating
higher growth in the future.
- The
average market P/E ratio is 20-25 times earnings.
- The
p/e ratio can use estimated earnings to get the forward
looking P/E ratio.
- Companies
that are losing money do not have a P/E ratio.
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[Click
on the image(s) above to see the financial statements] |
For
Cory's Tequila Co. |
$107.125 |
=
164.8 |
$0.65 |
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Price-Earnings
Analysis:
Sometimes referred to as the multiple, the idea behind the P/E ratio
is that it is a prediction or more likely an expectation of the
company's performance in the future. The P/E ratio for the overall
market averages around 20, so as you can see Cory's Tequila Co.
is much higher than this. In other words the market is expecting
big things from Cory's Tequila Co. over the next little while.
One thing to remember is that if a company has a low P/E ratio it
doesn't necessarily mean that it is undervalued. The P/E doesn't
dictate the stock price, in fact a low P/E could mean that the company's
earning are flat or growing slowing, they could also be in financial
trouble. In fact the P/E ratio doesn't tell a whole lot, but it's
useful to compare the P/E ratios of other companies in the same
industry, or to the market in general, or against the company's
own historical P/E ratios.
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