The Price to Earnings Multiple (aka Price to Earnings Ratio) is probably the single most widely used valuation in the investing world.
The multiple is the ratio of the current stock price to its Earnings per share (EPS).
Generally, stocks with P/E Multiples of less than 20 are considered good buys, but ratios by industry vary. Banks tend to have lower P/E multiples while Tech companies usually sport higher ones. Historically, the S&P 500 has an p/e average of around 20, which makes up a generic total market average. The multiple is a very useful tool for evaluating a company, but should not serve as the only value indicating while shopping for stocks.
Author: Tarik Pierce
Bio: Tarik is the CEO/Marketing Manager of InvestorTrip.com. He follows a simple diversified value investment strategy that seeks long term equity appreciation. He studies economics at Dartmouth College, and plans to pursue his MBA at Morgan State University this fall. Tarik enjoys reading, playing soccer, and living life to the fullest.
Bio: Tarik is the CEO/Marketing Manager of InvestorTrip.com. He follows a simple diversified value investment strategy that seeks long term equity appreciation. He studies economics at Dartmouth College, and plans to pursue his MBA at Morgan State University this fall. Tarik enjoys reading, playing soccer, and living life to the fullest.
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[...] Ratio aka Price over Earnings multiple - This ratio calculates the price of a stock divided by its trailing twelve month earnings to [...]