S&P 500   4,076.57
DOW   34,395.01
QQQ   293.72
Is Apple Going To Rally Into Year End?
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
25 Ways to Improve Your Financial Situation in 1 Hour
Are the Short Sellers Still Right About Mullen Automotive stock? 
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
La-Z-Boy Reclines To More Comfortable Levels 
Is The Recovery Rally Here For SoFi?
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
Biden administration presses senators to avert rail strike
Trump Org. defense lawyer scolded for using struck testimony
S&P 500   4,076.57
DOW   34,395.01
QQQ   293.72
Is Apple Going To Rally Into Year End?
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
25 Ways to Improve Your Financial Situation in 1 Hour
Are the Short Sellers Still Right About Mullen Automotive stock? 
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
La-Z-Boy Reclines To More Comfortable Levels 
Is The Recovery Rally Here For SoFi?
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
Biden administration presses senators to avert rail strike
Trump Org. defense lawyer scolded for using struck testimony
S&P 500   4,076.57
DOW   34,395.01
QQQ   293.72
Is Apple Going To Rally Into Year End?
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
25 Ways to Improve Your Financial Situation in 1 Hour
Are the Short Sellers Still Right About Mullen Automotive stock? 
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
La-Z-Boy Reclines To More Comfortable Levels 
Is The Recovery Rally Here For SoFi?
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
Biden administration presses senators to avert rail strike
Trump Org. defense lawyer scolded for using struck testimony
S&P 500   4,076.57
DOW   34,395.01
QQQ   293.72
Is Apple Going To Rally Into Year End?
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
25 Ways to Improve Your Financial Situation in 1 Hour
Are the Short Sellers Still Right About Mullen Automotive stock? 
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
La-Z-Boy Reclines To More Comfortable Levels 
Is The Recovery Rally Here For SoFi?
Could Biden's Executive Order 14017 Trigger A BULL RUN For This Little-Known Industry? (Ad)
Biden administration presses senators to avert rail strike
Trump Org. defense lawyer scolded for using struck testimony

Low PE Ratio Stocks

This page lists companies that have the lowest price-to-earnings ratios (PE Ratios), which is a common financial ratio used for valuing a stock. A stock's PE ratio is calculated by taking its share price and divided by its annual earnings per share. A higher PE ratio means that investors are paying more for each unit of net income, making it more expensive to purchase than a stock with a lower P/E ratio. Some investors often search for stocks with relatively low P/E ratios as a means for identifying the best value stocks that the market has largely passed over. Understanding the price to earnings ratio.

MarketRank evaluates a company based on community opinion, dividend strength, institutional and insider ownership, earnings and valuation, and analysts forecasts.
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Media sentiment refers to the percentage of positive news stories versus negative news stories a company has received in the past week.
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Analyst consensus is the average investment recommendation among Wall Street research analysts.
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CompanyCurrent PricePE RatioMarket CapVolumeAverage VolumeIndicator(s)
BEST Inc. stock logo
BEST
BEST
$0.56
0.27$44.53 million131,154195,809Positive News
Gap Down
AcelRx Pharmaceuticals, Inc. stock logo
ACRX
AcelRx Pharmaceuticals
$2.19
-8.4%
0.35$16.31 million448,08999,269Short Interest ↑
News Coverage
Gap Down
High Trading Volume
ZIM Integrated Shipping Services Ltd. stock logo
ZIM
ZIM Integrated Shipping Services
$20.09
-4.4%
0.41$2.52 billion4.51 million4.72 million
Jackson Financial Inc. stock logo
JXN
Jackson Financial
$37.03
-0.9%
0.47$3.10 billion1.07 million997,796Short Interest ↓
Gap Down
Sinclair Broadcast Group, Inc. stock logo
SBGI
Sinclair Broadcast Group
$18.39
-0.9%
0.54$1.29 billion520,455649,235
Yiren Digital Ltd. stock logo
YRD
Yiren Digital
$1.17
+8.3%
0.57$92.17 million70,195147,570Analyst Upgrade
News Coverage
Gap Down
Navios Maritime Holdings Inc. stock logo
NM
Navios Maritime
$1.91
-0.5%
0.57$30.52 million58,995123,485Short Interest ↓
Diversified Healthcare Trust stock logo
DHC
Diversified Healthcare Trust
$1.01
+2.0%
0.58$237.31 million2.26 million1.79 millionPositive News
Globus Maritime Limited stock logo
GLBS
Globus Maritime
$1.25
-8.8%
0.63$14.49 million708,518166,794Earnings Report
News Coverage
High Trading Volume
Sunlands Technology Group stock logo
STG
Sunlands Technology Group
$4.51
+0.2%
0.65$60.02 million25,88813,573Short Interest ↓
News Coverage
Gap Down
Omeros Co. stock logo
OMER
Omeros
$2.10
-1.9%
0.66$134.24 million628,689504,701
Transcontinental Realty Investors, Inc. stock logo
TCI
Transcontinental Realty Investors
$42.01
-0.8%
0.91$365.88 million6,6164,700
Theravance Biopharma, Inc. stock logo
TBPH
Theravance Biopharma
$10.80
+0.4%
0.96$724.86 million351,5131.05 millionPositive News
City Office REIT, Inc. stock logo
CIO
City Office REIT
$9.93
+0.4%
0.97$392.82 million228,202225,536Short Interest ↓
Positive News
Jiayin Group Inc. stock logo
JFIN
Jiayin Group
$2.12
+5.0%
0.99$109.13 million73,16637,076Short Interest ↓
Positive News
Grupo Televisa, S.A.B. stock logo
TV
Grupo Televisa, S.A.B.
$5.48
+0.4%
1.06$3.05 billion3.83 million3.70 millionAnalyst Downgrade
News Coverage
ALJ Regional Holdings, Inc. stock logo
ALJJ
ALJ Regional
$1.86
+9.4%
0.73$65.72 million304,73544,403News Coverage
Gap Up
High Trading Volume
iStar Inc. stock logo
STAR
iStar
$7.96
-0.9%
1.08$690.11 million956,996949,957Analyst Upgrade
Short Interest ↓
American Realty Investors, Inc. stock logo
ARL
American Realty Investors
$21.81
+3.2%
1.09$352.28 million1,8038,300Analyst Report
News Coverage
EuroDry Ltd. stock logo
EDRY
EuroDry
$16.10
+0.3%
1.10$47.90 million19,76523,280Short Interest ↓
Positive News
X Financial stock logo
XYF
X Financial
$2.18
-0.9%
1.20$120.67 million8,22221,213Short Interest ↓
Positive News
Canaan Inc. stock logo
CAN
Canaan
$2.52
-3.1%
1.22$445.91 million1.58 million1.83 millionShort Interest ↑
Venator Materials PLC stock logo
VNTR
Venator Materials
$0.62
-9.3%
1.24$73.12 million777,914416,062Gap Up
Liberty TripAdvisor Holdings, Inc. stock logo
LTRPA
Liberty TripAdvisor
$0.87
-1.3%
1.24$66.75 million201,207478,900
Kenon Holdings Ltd. stock logo
KEN
Kenon
$36.54
+1.8%
1.27$1.93 billion15,65614,204Short Interest ↓
Gap Up
TeraWulf Inc. stock logo
WULF
TeraWulf
$0.78
-6.3%
1.30$106.55 million133,815317,925Short Interest ↑
Lightning eMotors, Inc. stock logo
ZEV
Lightning eMotors
$0.62
-9.3%
1.32$51.87 million1.01 million1.67 million
Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria stock logo
CRESY
Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria
$6.04
+0.8%
1.33$354.39 million100,58190,049Short Interest ↓
Positive News
Navios Maritime Partners L.P. stock logo
NMM
Navios Maritime Partners
$25.18
-1.4%
1.34$770.91 million174,218158,691
Euroseas Ltd. stock logo
ESEA
Euroseas
$20.13
-1.2%
1.34$148.59 million34,11144,919
Chimerix, Inc. stock logo
CMRX
Chimerix
$2.35
+8.3%
1.34$191.06 million1.16 million1.22 millionShort Interest ↓
IRSA Inversiones y Representaciones Sociedad Anónima stock logo
IRS
IRSA Inversiones y Representaciones Sociedad Anónima
$4.28
1.36$281.91 million69,46035,116Dividend Cut
Short Interest ↑
Laredo Petroleum, Inc. stock logo
LPI
Laredo Petroleum
$61.11
-4.3%
1.42$1.07 billion443,490546,732Short Interest ↑
Liberty Global plc stock logo
LBTYA
Liberty Global
$19.88
-1.0%
1.48$9.23 billion1.86 million1.86 millionAnalyst Downgrade
Options Volume
News Coverage
Castor Maritime Inc. stock logo
CTRM
Castor Maritime
$1.61
-1.8%
1.50$147.53 million1.46 million675,196Positive News
High Trading Volume
Liberty Global plc stock logo
LBTYK
Liberty Global
$20.58
-0.5%
1.53$9.51 billion1.95 million1.64 millionPositive News
Hovnanian Enterprises, Inc. stock logo
HOV
Hovnanian Enterprises
$47.73
-0.6%
1.61$307.01 million57,28077,809Upcoming Earnings
Light & Wonder, Inc. stock logo
LNW
Light & Wonder
$64.26
-0.8%
1.64$6.07 billion605,651660,745Short Interest ↑
Insignia Systems, Inc. stock logo
ISIG
Insignia Systems
$8.90
-1.0%
1.64$16.15 million47,60390,341Short Interest ↑
Gap Down
Intrepid Potash, Inc. stock logo
IPI
Intrepid Potash
$35.54
-1.4%
1.64$486.28 million175,887303,194Short Interest ↑
YPF Sociedad Anónima stock logo
YPF
YPF Sociedad Anónima
$8.38
-0.1%
1.68$3.30 billion1.38 million2.19 million
Safe Bulkers, Inc. stock logo
SB
Safe Bulkers
$2.76
-3.2%
1.73$346.68 million735,741914,036Positive News
Ferroglobe PLC stock logo
GSM
Ferroglobe
$4.60
-0.6%
1.74$867.26 million2.18 million2.19 millionShort Interest ↑
Guild Holdings stock logo
GHLD
Guild
$10.96
-6.0%
1.75$712.04 million42,33822,521Short Interest ↑
Millicom International Cellular S.A. stock logo
TIGO
Millicom International Cellular
$13.75
+1.3%
1.81$1.38 billion126,900162,151Short Interest ↓
Positive News
Matson, Inc. stock logo
MATX
Matson
$63.79
+0.0%
1.88$2.41 billion223,901435,819
ArcelorMittal S.A. stock logo
MT
ArcelorMittal
$26.62
-1.6%
1.97$25.37 billion1.70 million2.48 million
Beazer Homes USA, Inc. stock logo
BZH
Beazer Homes USA
$14.13
+3.5%
1.97$421.51 million268,990398,299
Algoma Steel Group Inc. stock logo
ASTL
Algoma Steel Group
$6.61
-0.2%
1.98$687.52 million789,0061.11 millionEx-Dividend
Positive News
Danaos Co. stock logo
DAC
Danaos
$55.08
-0.4%
1.99$1.15 billion215,114217,187
Retractable Technologies, Inc. stock logo
RVP
Retractable Technologies
$2.11
+7.1%
2.40$64.89 million102,12263,935Analyst Report
Capital Product Partners L.P. stock logo
CPLP
Capital Product Partners
$14.63
+3.6%
2.03$278.77 million123,84469,729Analyst Downgrade
Short Interest ↑
BlueLinx Holdings Inc. stock logo
BXC
BlueLinx
$70.42
+1.5%
2.05$627.06 million82,48276,253Analyst Upgrade
Short Interest ↓
News Coverage
PBF Energy Inc. stock logo
PBF
PBF Energy
$39.43
-0.9%
2.05$4.87 billion7.22 million3.88 million
Callon Petroleum stock logo
CPE
Callon Petroleum
$40.92
-2.4%
2.05$2.58 billion1.23 million1.40 millionAnalyst Revision
News Coverage
Dynagas LNG Partners LP stock logo
DLNG
Dynagas LNG Partners
$2.93
+0.3%
2.09$107.57 million63,97461,597Short Interest ↓
News Coverage
Mawson Infrastructure Group, Inc. stock logo
MIGI
Mawson Infrastructure Group
$0.34
2.13$27.63 million227,534318,217Short Interest ↓
Gap Up
Alpha Metallurgical Resources, Inc. stock logo
AMR
Alpha Metallurgical Resources
$167.31
-2.3%
2.14$2.73 billion227,294290,647Short Interest ↓
Analyst Revision
News Coverage
Petróleo Brasileiro S.A. - Petrobras stock logo
PBR
Petróleo Brasileiro S.A. - Petrobras
$11.28
-3.5%
2.17$76.24 billion21.03 million41.34 millionAnalyst Upgrade
Short Interest ↑
Alpha and Omega Semiconductor Limited stock logo
AOSL
Alpha and Omega Semiconductor
$34.99
-0.3%
2.18$959.01 million150,709512,320Short Interest ↓
Azenta, Inc. stock logo
AZTA
Azenta
$61.83
+2.7%
2.18$4.52 billion944,955965,762Positive News
Banco BBVA Argentina S.A. stock logo
BBAR
Banco BBVA Argentina
$3.19
-1.2%
2.20$659.68 million596,698486,573
Lufax Holding Ltd stock logo
LU
Lufax
$1.74
-6.5%
2.20$4.25 billion21.61 million18.85 millionAnalyst Downgrade
Short Interest ↑
Gap Down
United States Steel Co. stock logo
X
United States Steel
$26.52
+0.9%
2.20$6.16 billion8.68 million7.94 millionNews Coverage
Global Ship Lease, Inc. stock logo
GSL
Global Ship Lease
$16.99
-2.1%
2.20$637.58 million319,188476,796Short Interest ↓
Positive News
Ryerson Holding Co. stock logo
RYI
Ryerson
$29.77
+0.9%
2.22$1.09 billion191,586206,658Short Interest ↓
Ternium S.A. stock logo
TX
Ternium
$30.83
-2.1%
2.22$6.31 billion161,562268,756Short Interest ↑
Diana Shipping Inc. stock logo
DSX
Diana Shipping
$3.51
-1.7%
2.22$307.73 million569,706945,000Short Interest ↑
CompoSecure, Inc. stock logo
CMPO
CompoSecure
$5.01
2.27$382.50 million62,558126,925Short Interest ↓
Ambac Financial Group, Inc. stock logo
AMBC
Ambac Financial Group
$16.20
-0.4%
2.27$728.53 million539,183686,261Short Interest ↓
Ambac Financial Group, Inc. stock logo
AMBC
Ambac Financial Group
$16.20
-0.4%
2.27$728.53 million539,183686,261
Cherry Hill Mortgage Investment Co. stock logo
CHMI
Cherry Hill Mortgage Investment
$5.94
+0.5%
2.28$124.04 million278,400233,634Short Interest ↓
SilverBow Resources, Inc. stock logo
SBOW
SilverBow Resources
$33.17
-5.0%
2.28$778.83 million233,144289,101Short Interest ↓
Positive News
Live Ventures Incorporated stock logo
LIVE
Live Ventures
$24.52
-2.7%
2.34$77.61 million1,7042,387Analyst Report
Short Interest ↓
Positive News
Telesat Corp stock logo
TSAT
Telesat
$9.00
+4.7%
2.34$103.37 million15,88729,859Short Interest ↓
News Coverage
Positive News
Gap Up
Grupo Aval Acciones y Valores S.A. stock logo
AVAL
Grupo Aval Acciones y Valores
$2.30
-2.1%
2.35$2.55 billion87,243127,922Short Interest ↑
Costamare Inc. stock logo
CMRE
Costamare
$9.43
-2.2%
2.37$1.17 billion522,279627,159Short Interest ↑
Salem Media Group, Inc. stock logo
SALM
Salem Media Group
$1.33
2.38$36.20 million23,16983,430Analyst Report
Short Interest ↑
News Coverage
Gap Up
Chord Energy Co. stock logo
CHRD
Chord Energy
$147.19
-3.5%
2.41$6.35 billion375,006377,757
Star Bulk Carriers Corp. stock logo
SBLK
Star Bulk Carriers
$18.61
-3.3%
2.44$1.97 billion1.63 million2.04 millionEx-Dividend
Daqo New Energy Corp. stock logo
DQ
Daqo New Energy
$53.24
-6.4%
2.50$4.24 billion1.25 million1.01 millionShort Interest ↓
News Coverage
Gap Down
Intercept Pharmaceuticals, Inc. stock logo
ICPT
Intercept Pharmaceuticals
$14.57
-2.3%
2.54$617.53 million370,342557,050
Seanergy Maritime Holdings Corp. stock logo
SHIP
Seanergy Maritime
$0.51
-1.7%
2.54$79.22 million3.29 million1.43 millionAnalyst Report
News Coverage
High Trading Volume
Grindrod Shipping Holdings Ltd. stock logo
GRIN
Grindrod Shipping
$20.96
-0.4%
2.54$405.02 million404,589471,506
OppFi Inc. stock logo
OPFI
OppFi
$2.50
+0.4%
2.55$272.87 million120,91986,545
Comstock Holding Companies, Inc. stock logo
CHCI
Comstock Holding Companies
$4.57
+4.6%
2.56$41.38 million16,0335,005Analyst Report
Short Interest ↓
High Trading Volume
Friedman Industries, Incorporated stock logo
FRD
Friedman Industries
$9.31
+2.6%
4.85$66.91 million20,27311,684
Consumer Portfolio Services, Inc. stock logo
CPSS
Consumer Portfolio Services
$8.50
-1.4%
2.56$179.82 million29,61170,744Positive News
RumbleON, Inc. stock logo
RMBL
RumbleON
$7.70
+0.9%
2.58$123.56 million96,821231,525Short Interest ↓
Eagle Bulk Shipping Inc. stock logo
EGLE
Eagle Bulk Shipping
$49.91
-3.0%
2.60$703.89 million203,390260,182
Genie Energy Ltd. stock logo
GNE
Genie Energy
$9.88
-0.9%
2.61$258.10 million47,12782,341Short Interest ↓
Positive News
Crescent Point Energy Corp. stock logo
CPG
Crescent Point Energy
$7.60
-2.2%
2.68$4.32 billion5.93 million8.06 million
Bassett Furniture Industries, Incorporated stock logo
BSET
Bassett Furniture Industries
$18.52
-2.5%
2.70$173.87 million26,49631,036Analyst Upgrade
Short Interest ↓
News Coverage
Annaly Capital Management, Inc. stock logo
NLY
Annaly Capital Management
$21.88
+1.0%
2.73$10.14 billion6.62 million6.76 million
OptimumBank Holdings, Inc. stock logo
OPHC
OptimumBank
$4.35
-2.2%
2.75$30.12 million1,54311,853Analyst Report
News Coverage
Golden Ocean Group Limited stock logo
GOGL
Golden Ocean Group
$8.18
-3.1%
2.76$1.21 billion2.21 million2.68 millionShort Interest ↓
LexinFintech Holdings Ltd. stock logo
LX
LexinFintech
$1.69
-6.6%
2.77$332.80 million489,269841,975Gap Down
Lumen Technologies, Inc. stock logo
LUMN
Lumen Technologies
$5.59
+2.2%
2.80$5.66 billion27.93 million28.08 million
Warrior Met Coal, Inc. stock logo
HCC
Warrior Met Coal
$36.76
-0.2%
2.80$1.90 billion624,912635,244Short Interest ↑
Analyst Revision
News Coverage
Genco Shipping & Trading Limited stock logo
GNK
Genco Shipping & Trading
$14.44
-2.6%
2.80$627.71 million809,4011.10 millionShort Interest ↓
Positive News
What the Price to Earnings (P/E) Ratio Tells Investors and Why That Matters

Understanding how much to pay for a company’s earnings is the difference between price and value

The price-to-earnings (P/E) ratio is arguably the most common financial ratio used to value a stock. A stock’s P/E ratio tells investors how much they are paying for one dollar of a company’s earnings. In this article we’ll take and in-depth look at the P/E ratio including how it’s calculated, how investors should analyze P/E ratio, and why it’s important. The article will also compare the P/E ratio with some other commonly used financial ratios.

The price-to-earnings ratio is a measurement of how much an investor is paying for one dollar of a company’s earnings. When a company has a P/E ratio of 15 investors are paying $15 for every dollar of a company’s earnings.

Value investors use the P/E ratio to determine whether a stock is overvalued or undervalued. The ratio can also reveal how a stock’s value compares with that of the industry average or a benchmark index for that matter.

The two components of the P/E ratio tell investors a story of price versus value. Stock price (the P in the P/E ratio) tells investors how much it will cost them to buy one share of a company’s stock. Earnings per share (the E in the ratio) gives investors an idea of how valuable those shares are.

The two components used to calculate the price to earnings ratio are the stock price, which is set by forces of demand and supply in the market, and EPS, or earnings per share over a specific period of time, usually one year.

Here are a couple of examples using stock prices and EPS values as of June 29, 2022:

Dollar General has a share price of $247.65 and in the last four quarters it has delivered a total EPS of $9.75. Its P/E ratio is calculated as follows:

247.65/9.75 = 25.4

Dollar Tree has a share price of $156.01 and a total EPS of $6.57. Its P/E ratio is calculated as follows:

156.01/6.57 = 23.7

It’s that simple. And while a stock’s P/E ratio is readily available to investors, it’s easy for investors to find the information they need. And the math is just as simple as shown above.

The price-to-earnings ratio is calculated using earnings per share of the last four quarters, a metric normally referred to as trailing earnings per share. The most commonly displayed P/E ratio is a trailing P/E ratio that means it is based on the most recent four quarters of earnings. This means that in all but one quarter of the year, the P/E ratio reflects not only earnings that are occurring in the current fiscal year but also those that the company delivered in the prior fiscal year.

This is why some investors choose to use a different metric known as the forward P/E ratio. This comes from the company’s guidance. It’s common for company management to issue earnings forecasts for subsequent quarters. Investors and analysts can use these numbers to calculate a forward P/E ratio. This gives investors an idea of how confident a company is in their profit forecast in the next four quarters.

For investors who are looking to take a long position in a company’s stock, the forward P/E ratio may be more valuable than its current P/E ratio. By contrast, a short-term trader may be more interested in the current P/E ratio because they are looking at how to profit in the short term.

P/E is typically only calculated for companies that are profitable (i.e., companies with positive earnings). A company that is losing money would have a negative P/E. Negative P/E values are usually listed as N/A (not available) to avoid confusion.

However, a lack of profitability may not be an obstacle for growth-oriented investors. That depends on where a company is at in its business cycle,

Any investor or advisor that says they know the answer to this is not being truthful with you. It’s true that you can look at indexes such as the S&P 500 index or the NASDAQ index for guidance. But since these index funds carry stocks from different sectors, it’s not a one-size-fits-all solution.

With that in mind, some investors will look at the average P/E ratio for a specific sector. For example, they can look at the average P/E ratio for the technology sector and then compare that to a specific company they are considering such as Apple or Microsoft.

However, this also fails to take into account the specifics of an individual company. Within a specific sector, one company may trade at an above-average P/E ratio and be worth the price. Another may have an average or below average P/E ratio and still be overvalued.

With that in mind, investors can use some broad principles to analyze a company’s P/E ratio.

First, a stock with a lower P/E ratio relative to the industry average will often be a better value when compared to a stock with a higher P/E. This is because a low P/E ratio allows investors to pay less for every dollar on earnings.

However, it’s also important to note that a lower P/E ratio may be indicative of poor current and predicted performance. While an investor will be able to pay less for every dollar of earnings, if the company continues to underperform the company’s earnings and its stock price may continue to fall.

Second, companies with higher P/E are expected to have higher earnings in the future. If the company pays dividends it is usually expected to issue higher dividends.  This expectation of future growth is why investors are willing to pay a premium for the company’s stock.

Price to earnings ratio is important because it gives clues about key fundamentals of a company such as its future growth prospects, investor confidence, and the amount of risk investors take on at its current price. If a company has a proven track record, then it is more than certain to have a higher P/E, relative to a company with a low P/E.

Companies with robust corporate governance command higher P/E than their peers as good oversight goes a long way in strengthening investor confidence in the stock. High and stable dividend-paying companies also command high P/E in part because it shows fundamental strength in a company’s ability to reward shareholders.

Value investors, who are always looking for bargains in the stock market, will search for stocks that have a low P/E ratio. The lower the metric, the less they have to pay per dollar of earnings. Companies that have a low P/E ratio but are otherwise solid companies can be a good investment because they are currently undervalued but the price is likely to increase in the future.

It is important to look at a company’s P/E in light of industry benchmarks. Industries affected by economic cycles tend to trade at much lower P/E compared to those that aren’t.

Price-to-earnings and price-to-book are two commonly used ratios regarding stock value. Price to book ratio is a ratio that compares a company’s market value to book value. Book value refers to the company’s total assets minus total liabilities.

Price to book ratio underscores the value that market participants attach to a company’s equity. Companies command different P/Bs because some companies and industries are more efficient at producing income from their assets than others.

Price to book value differs from price to earnings ratio in the fact that it can be used to value firms with positive book values and negative earnings, i.e., companies that are making losses. P/E is only a useful measure for companies with positive earnings.  However, P/B can be useless when used in companies with few tangible assets in their balance sheets, such as information tech companies that mostly offer services. In addition, the metric can remain negative for long periods should a company that has more debt than assets.

Price to Book ratio is ideal for analyzing stocks in industrials as well as in the financial sector. This is in part because these companies have a stronger link between assets and income generating ability. Industrial companies have assets tied to inventory and property, such as production plants or equipment. Property and loans on the other hand account for a huge chunk of assets owned by financial institutions.

The bottom line is that the P/E ratio allows you to consider what premium you are paying for a company’s earnings.  It is up to you to decide whether the company’s expected growth warrants the premium at stake. As part of an investor’s due diligence, the P/E ratio should be in combination with other metrics to determine the actual value of a stock prior to investing.

It is also important to note that a company with a high P/E ratio will always be under pressure to live up to market expectations. Investors expect such companies to register continuous earnings growth, and failure to do so always result in a stock price drop. It is for this reason that investors tend to be a little bit cautious when it comes to companies with a high P/E.

Conversely, just because a company has a lower P/E does not mean that its stock is a buy. In this case, it would be wise to do extensive research to determine why the company has a lower P/E before jumping into a trade.  Low P/E at times reflects a lack of growth potential which could make it difficult for an investor to generate significant returns in the long term.

That said, the price to earnings ratio is not the only number worth considering when planning to buy shares. Some other things to look out for include dividend rate, price to book ratio, earnings charts as well as sales figures.


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