The food and beverage sector includes diverse groups of companies specializing in producing different foods and beverages such as specialty health foods, meat products, eggs, soft drinks, beer and liquor. One metric that investors use to assess companies' relative value is the price-to-earnings ratio. In May 2015, the P/E ratio for food and beverage companies with positive earnings ranged from 2.7 to 1,124 and the average ratio was 51.8.
The P/E ratio is a relative valuation metric calculated as the current stock price divided by earnings per share. Depending on the EPS used in the denominator, the P/E ratio can be calculated based on EPS for the most recent 12 months or on analysts' projections for forward annual EPS. If the company generated negative earnings, the P/E ratio is meaningless. The P/E ratio constantly changes as the company's stock price and earnings change.
In May 2015, the P/E ratio for the food and beverage sector ranged from 2.7 for China New Borun Corp., which produces and distributes corn-based edible alcohol, to 1,124 for SunOpta. Some companies within the sector report negative earnings, and their P/E ratio is not defined.
The average P/E ratio could be a misleading metric if the distribution of the P/E ratios within an industry is highly skewed. Since there are a few large outliers such as SunOpta, the average P/E ratio represents a misleading relative value metric. Instead analysts often calculate other measures such as median to assess the typical P/E ratio within the food and beverage sector. In May 2015, the median P/E ratio was 24.3.