Talk:Price–earnings ratio/Archives/2011

Earnings and income are different

This page currently contains the following text:

The Earnings per share (denominator) is the Net income of the company for the most recent 12 month period, divided by number of shares outstanding.

I'm no accountant, but earnings and income are two different things, aren't they? So this sentence can't be correct as it stands. Can someone fix it? --Doradus 14:27, 9 March 2006 (UTC)

no

P3d0 :
It seems that earnings and net income is same thing, no need to fix it. From Yahoo Finance Glossary

Earnings
Net income for the company during a period.
Net income
The company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses.

Vcp 08:58, 23 May 2006 (UTC)

Stock advice from an encyclopedia

I wonder why some people feel uncomfortable with the clear-elaborated article. Daniel —Preceding unsigned comment added by 139.18.25.35 (talk) 09:16, 16 October 2007 (UTC)

Is anyone else uncomfortable with how much of this article tries to be stock trading instruction? The sentences containing "you" are particularly explicit in this regard. Not only is all of it POV, but it is also outside the scope of a reference work. Acceptable for Wikibooks maybe, but not Wikipedia.

I liked the article. It explained the P/E very clearly. 02:23, 20 March 2007 (UTC)

I agree with this sentiment. I used the same argument to get rid of a lot of the advice on the Texas hold 'em page. --Doradus 14:19, 13 March 2006 (UTC)

I disagree. I don't think the use of the word 'you' implies POV at all. Nor does make this into a How-to manual. I left messages at the home of both these contributors asking which POV they disagreed with. Neither of them has given any example. I say that if you don't have something to contribute you should.......Retail Investor 01:01, 27 October 2006 (UTC)

I don't think using the word "you" is encyclopedic. Rm999

This is simply using the information as an example....The reference in and of itself is related to something users of financial markets are interested in comprehending. In this case, "you" is implicit and does not create any need for change.Scarlson1 04:03, 20 January 2007 (UTC)scarlson1

I agree, this does too much interpretation of what a P/E ratio 'means', when it should be about what P/E ratio 'is'. The opinion of its value unless taken from a sourced-piece I would say violates the 'no original research' policy of wikipedia. ny156uk 18:01, 23 February 2007 (UTC)

NPOV flag added. Edits to neutralize welcome.--Gregalton 20:17, 23 February 2007 (UTC)

Market P/E histories

Does anyone have a link we could include that points to average market P/E ratios during various downturns? It would be very helpful to see real-life examples of where P/E ratios have ended up in the depths of a recession/depression. --RayBirks 00:03, 28 April 2007 (UTC)

P/E declining after a peak may sometimes suggests a downturn, but not always as Stocks for the Long Run argues. For historical data see http://www.investopedia.com/articles/technical/04/020404.asp At the very bottom market P/E has been below 10, but don't expect to get there anytime soon. --Chakreshsinghai (talk) 01:36, 12 December 2007 (UTC)

Upon further thinking, I realized that you had a very good question. I have just added some data.--Chakreshsinghai (talk) 00:55, 29 January 2008 (UTC)

• These historical P/E ratios are still inadequate to show any overall comparison. They only account for the last 20 years or so which is part of the market run up and not a statistical indicator of anything over the history of the market. The original question above is still a good, valid question and still essentially unanswered... It would provide some kind of context to put this article's hype into perspective. Stevenmitchell (talk) 04:42, 29 August 2009 (UTC)

Conglomerates

I like this article in general -- excellent introduction -- but

The primary motivation for building conglomerates is to diversify earnings so that they go up steadily over time.

seems like rather a big assertion. There are other motivations: scale, market power, and so on. I would like some evidence. Subsolar 03:06, 26 June 2007 (UTC)

P/E guideline table

I think the table given can be quite misleading. A P/E higher than 17 can be quite justifiable for a growth stock(for example when its PEG is less than one). Please see earnings growth--Chakreshsinghai (talk) 06:40, 28 January 2008 (UTC)

What is also misleading is that it does not show in parallel the real riskless rate (= 10 years sovereign bonds interest rate, at the same dates, deflated by the inflation index in the same periods) which is a key parameters in security valuation. --Pgreenfinch (talk) 07:42, 28 January 2008 (UTC)

Recent historic values

Can the table color be changed into something less hideous ? —Preceding unsigned comment added by 128.113.229.146 (talk) 15:53, 12 February 2008 (UTC)

Referring to "we"

Many parts of the article say things such as "in reality, we calculate P/E using". Shouldn't it read, for example, "In reality, P/E is calculated using". After all, who is we? And why did we, who apparently does this calculating, write the article? Otherwise, good article. —Preceding unsigned comment added by Morphling89 (talk • contribs) 08:33, 22 March 2008 (UTC)

25+ P/E referred to as "very low"

I don't understand the table in the section "Interpretation". Why is "25+" considered a "very low" P/E ratio? Is this just a mistake for "very high"? —Preceding unsigned comment added by 24.224.234.41 (talk) 04:02, 9 July 2008 (UTC)

Leverage

The section which incorporates comments on leverage is inaccurate in my opinion. I havent altered the article itself as I dont want to upset anyone. However I would be grateful to hear other people's views on this.

The section states:

"Assuming the effect of leverage is positive, the earnings for a highly-leveraged company will also be higher."

At face value, this statement is incorrect. Earnings in this article relates to equity earnings. Two identical companies, one funded 50% by debt / 50% equity, the other 100% equity, will have different equity earnings due to the interest burden. The levered company will have LOWER earnings to equity. Firm earnings, for example EBITDA, will be the same, regardless of capital structure.

There are other effects that we all understand - tax shields on interest payments etc, but the statement at face value is incorrect, as interest payments will always be higher than the net tax benefit.

Returns to equity (ROE) can be higher using debt, but not earnings themselves. I think this is what the original author has confused.

Thanks Jack (CFA) —Preceding unsigned comment added by 129.67.30.75 (talk) 14:46, 10 December 2009 (UTC)

too much instruction

Some examples... I particularly don't think any second-person voice belongs in an encyclopedia

By dividing the price of one share in a company by the profits earned by the company per share, you arrive at the P/E ratio. If earnings per share move proportionally with share prices the ratio stays the same. But if stock prices gain in value and earnings remain the same or go down, the P/E rises.

Normally, stocks with high earning growth are traded at higher P/E values. From the previous example, stock A, trading at $24 per share, may be expected to earn $6 per share the next year. Then the forward P/E ratio is $24/6 = 4. So, you are paying $4 for every one dollar of earnings, which makes the stock more attractive than it was the previous year.

See: Wikipedia is not a guidebook 74.100.178.116 (talk) 21:08, 19 December 2009 (UTC)

Market p/e ratio section -- potentially inaccurate

Read Jeremy Siegel's article on the market pe ratio. He suggests market-weighting earnings in the market PE calculation.

http://finance.yahoo.com/expert/article/futureinvest/153794 —Preceding unsigned comment added by 69.245.49.203 (talk) 02:49, 29 October 2010 (UTC)

Dealing with division by zero

It is probably worth mentioning what's done when a firm has been making zero profit or making a loss. In the dot-com boom era, most of the internet firms hadn't made a profit and so the P/E was either infinite or negative.
Suppose one firm has zero earnings and so infinite PE, now if we take an average of a group of firms' PEs and the infinite PE is include, the average will also be infinite. One rotten apple will pollute the whole barrel. Aberdeen01 (talk) 06:27, 8 November 2010 (UTC)

But that's not how the P/E of an index or a group of companies is computed. For the P/E of a group, the total market cap of all the group constituents is divided by the group's total earnings. This gives a correct capitalization-weighed average P/E, and isn't "polluted" by zero or negative earning members. If you insist on averaging P/Es directly, the only way to do that is using a Harmonic mean. Owen× ☎ 12:22, 8 November 2010 (UTC)

Out of date

Just a comment that the historical Schiller p/e data currently ends in 2009. —Preceding unsigned comment added by 98.253.23.120 (talk) 01:49, 22 May 2011 (UTC)