S&P 500   4,145.19
DOW   32,803.47
QQQ   321.75
China July exports rise, with trade surplus at record-high
pixel
Musk says Twitter deal could move ahead with 'bot' info
Demand for grocery delivery cools as food costs rise
Dems' climate, energy, tax bill clears initial Senate hurdle
Shift in war's front seen as ships cleared to leave Ukraine
Transit woes mount for Boston's beleaguered subway riders
Dems push Biden climate, health priorities toward Senate OK
S&P 500   4,145.19
DOW   32,803.47
QQQ   321.75
China July exports rise, with trade surplus at record-high
pixel
Musk says Twitter deal could move ahead with 'bot' info
Demand for grocery delivery cools as food costs rise
Dems' climate, energy, tax bill clears initial Senate hurdle
Shift in war's front seen as ships cleared to leave Ukraine
Transit woes mount for Boston's beleaguered subway riders
Dems push Biden climate, health priorities toward Senate OK
S&P 500   4,145.19
DOW   32,803.47
QQQ   321.75
China July exports rise, with trade surplus at record-high
pixel
Musk says Twitter deal could move ahead with 'bot' info
Demand for grocery delivery cools as food costs rise
Dems' climate, energy, tax bill clears initial Senate hurdle
Shift in war's front seen as ships cleared to leave Ukraine
Transit woes mount for Boston's beleaguered subway riders
Dems push Biden climate, health priorities toward Senate OK
S&P 500   4,145.19
DOW   32,803.47
QQQ   321.75
China July exports rise, with trade surplus at record-high
pixel
Musk says Twitter deal could move ahead with 'bot' info
Demand for grocery delivery cools as food costs rise
Dems' climate, energy, tax bill clears initial Senate hurdle
Shift in war's front seen as ships cleared to leave Ukraine
Transit woes mount for Boston's beleaguered subway riders
Dems push Biden climate, health priorities toward Senate OK

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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Analyst ConsensusUpgrade to All Access to use the All Ratings Filter
CompanyCurrent PricePE RatioMarket CapVolumeAverage VolumeIndicator(s)
Macquarie Infrastructure Holdings, LLC stock logo
MIC
Macquarie Infrastructure
$4.09
0.13$363.95 million01.37 millionAnalyst Report
WEBR
Weber
$7.48
+7.6%
0.24$2.15 billion1.28 million529,536Analyst Downgrade
News Coverage
Gap Down
High Trading Volume
Navios Maritime Holdings Inc. stock logo
NM
Navios Maritime
$2.28
+3.6%
0.36$36.25 million113,627139,244Short Interest ↑
Eargo, Inc. stock logo
EAR
Eargo
$1.23
-6.1%
0.41$48.41 million4.30 million8.48 millionUpcoming Earnings
Options Volume
Gap Down
Liberty TripAdvisor Holdings, Inc. stock logo
LTRPA
Liberty TripAdvisor
$0.91
+45.8%
0.45$68.85 million8.75 million1.56 millionNews Coverage
Gap Up
High Trading Volume
Liminal BioSciences Inc. stock logo
LMNL
Liminal BioSciences
$0.41
-4.5%
0.51$12.58 million119,60945,732High Trading Volume
Sinclair Broadcast Group, Inc. stock logo
SBGI
Sinclair Broadcast Group
$22.98
-1.1%
0.67$1.65 billion666,791826,245Earnings Report
Dividend Announcement
Analyst Downgrade
DAVIDsTEA Inc. stock logo
DTEA
DAVIDsTEA
$1.57
+0.6%
0.73$41.52 million14,00636,882Gap Up
Sohu.com Limited stock logo
SOHU
Sohu.com
$16.70
+0.2%
0.75$638.29 million75,69199,148Upcoming Earnings
News Coverage
Allied Esports Entertainment Inc. stock logo
AESE
Allied Esports Entertainment
$1.54
-4.9%
0.99$60.24 million103,61888,016Gap Down
Sunlands Technology Group stock logo
STG
Sunlands Technology Group
$5.23
-6.3%
0.99$69.76 million24,43514,715Gap Down
Diversified Healthcare Trust stock logo
DHC
Diversified Healthcare Trust
$1.73
-0.6%
1.01$413.68 million2.02 million1.64 millionNews Coverage
ZIM Integrated Shipping Services Ltd. stock logo
ZIM
ZIM Integrated Shipping Services
$49.94
-0.2%
1.04$5.99 billion1.93 million2.68 million
Globus Maritime Limited stock logo
GLBS
Globus Maritime
$1.64
-0.6%
1.09$17.34 million123,452178,548
Jackson Financial Inc. stock logo
JXN
Jackson Financial
$28.15
+0.9%
1.12$2.43 billion1.00 million891,305Upcoming Earnings
Insider Selling
News Coverage
Draganfly Inc. stock logo
DPRO
Draganfly
$0.96
+3.8%
1.13$129.73 million117,772105,872Upcoming Earnings
EuroDry Ltd. stock logo
EDRY
EuroDry
$16.22
+0.6%
1.14$48.41 million25,58428,020Upcoming Earnings
News Coverage
Salem Media Group, Inc. stock logo
SALM
Salem Media Group
$2.23
+1.4%
1.23$60.56 million43,96264,010News Coverage
City Office REIT, Inc. stock logo
CIO
City Office REIT
$12.85
-0.1%
1.25$559.67 million285,669330,451Analyst Downgrade
News Coverage
BEST Inc. stock logo
BEST
BEST
$1.38
+3.8%
1.29$109.71 million84,320161,787Positive News
Shenandoah Telecommunications stock logo
SHEN
Shenandoah Telecommunications
$22.95
+3.3%
1.29$1.15 billion108,833137,672Analyst Revision
News Coverage
United States Steel Co. stock logo
X
United States Steel
$23.32
+1.5%
1.36$5.53 billion9.10 million11.37 millionDividend Announcement
Buyback Announcement
News Coverage
Positive News
X Financial stock logo
XYF
X Financial
$2.99
+3.8%
1.38$161.02 million34,5598,459Upcoming Earnings
News Coverage
Positive News
Gap Down
High Trading Volume
Grupo Televisa, S.A.B. stock logo
TV
Grupo Televisa, S.A.B.
$7.33
-1.9%
1.42$4.10 billion2.17 million1.29 million
ArcelorMittal S.A. stock logo
MT
ArcelorMittal
$24.48
+1.4%
1.48$22.96 billion1.74 million2.76 million
Jiayin Group Inc. stock logo
JFIN
Jiayin Group
$2.25
-3.2%
1.49$121.56 million9,29419,834
Algoma Steel Group Inc. stock logo
ASTL
Algoma Steel Group
$9.40
+1.8%
1.51$1.38 billion2.67 million3.14 millionDividend Announcement
Analyst Revision
News Coverage
Positive News
LexinFintech Holdings Ltd. stock logo
LX
LexinFintech
$2.04
+0.5%
1.57$375.09 million593,841723,526Gap Down
PFSweb, Inc. stock logo
PFSW
PFSweb
$11.01
-2.5%
1.65$249.13 million52,91076,343Upcoming Earnings
Kenon Holdings Ltd. stock logo
KEN
Kenon
$43.31
-1.0%
1.68$2.33 billion18,43731,477Short Interest ↓
Navios Maritime Partners L.P. stock logo
NMM
Navios Maritime Partners
$28.69
+2.3%
1.74$866.35 million147,641189,552Dividend Cut
Analyst Upgrade
Brighthouse Financial, Inc. stock logo
BHF
Brighthouse Financial
$45.13
+6.2%
1.77$3.38 billion1.14 million524,391News Coverage
Gap Up
High Trading Volume
Ternium S.A. stock logo
TX
Ternium
$34.50
+0.8%
1.80$6.92 billion195,533389,435Analyst Downgrade
News Coverage
IT Tech Packaging, Inc. stock logo
ITP
IT Tech Packaging
$1.09
-2.7%
1.82$10.80 million230,902208,726Upcoming Earnings
Gap Up
Hovnanian Enterprises, Inc. stock logo
HOV
Hovnanian Enterprises
$46.64
+0.2%
1.82$294.39 million51,96564,456News Coverage
Gap Down
Canaan Inc. stock logo
CAN
Canaan
$3.88
-1.0%
1.84$725.34 million1.32 million2.34 million
Braskem S.A. stock logo
BAK
Braskem
$13.67
+4.6%
1.86$6.17 billion176,598225,417Upcoming Earnings
Guild Holdings stock logo
GHLD
Guild
$11.60
-2.8%
1.87$708.26 million2,0759,078News Coverage
Gap Up
iStar Inc. stock logo
STAR
iStar
$16.46
+1.4%
1.88$1.36 billion531,964653,949News Coverage
Millicom International Cellular S.A. stock logo
TIGO
Millicom International Cellular
$15.23
+0.1%
1.95$1.55 billion67,579157,917
Ryerson Holding Co. stock logo
RYI
Ryerson
$26.43
+0.4%
1.99$979.36 million149,678261,083Dividend Increase
Analyst Downgrade
Short Interest ↓
News Coverage
Advanced Emissions Solutions, Inc. stock logo
ADES
Advanced Emissions Solutions
$4.76
-0.6%
2.03$90.90 million100,23652,431
Intrepid Potash, Inc. stock logo
IPI
Intrepid Potash
$42.77
-2.9%
2.04$582.48 million356,541323,463Earnings Report
News Coverage
Gap Down
WideOpenWest, Inc. stock logo
WOW
WideOpenWest
$18.81
-0.9%
2.06$1.65 billion683,735628,553Short Interest ↑
News Coverage
Gap Down
Laredo Petroleum, Inc. stock logo
LPI
Laredo Petroleum
$66.80
+0.5%
2.11$1.16 billion1.31 million662,691Analyst Revision
News Coverage
Danaos Co. stock logo
DAC
Danaos
$75.97
+3.6%
2.17$1.57 billion395,288250,638Dividend Announcement
Analyst Upgrade
Analyst Revision
Omeros Co. stock logo
OMER
Omeros
$6.83
+19.2%
2.18$428.45 million999,206779,729Upcoming Earnings
News Coverage
TransGlobe Energy Co. stock logo
TGA
TransGlobe Energy
$3.08
+1.7%
2.25$225.47 million1.03 million1.42 million
POSCO Holdings Inc. stock logo
PKX
POSCO
$45.96
+2.0%
2.26$13.90 billion121,298172,858
Fury Gold Mines Limited stock logo
FURY
Fury Gold Mines
$0.45
-1.7%
2.26$63.07 million123,47186,801
Safe Bulkers, Inc. stock logo
SB
Safe Bulkers
$3.69
+1.4%
2.26$448.86 million580,449807,810Positive News
OptimumBank Holdings, Inc. stock logo
OPHC
OptimumBank
$3.78
+4.4%
2.28$18.51 million3,61912,390Upcoming Earnings
Gap Up
Azenta, Inc. stock logo
AZTA
Azenta
$70.02
+0.3%
2.37$5.25 billion273,053616,501Upcoming Earnings
BlueLinx Holdings Inc. stock logo
BXC
BlueLinx
$77.68
-1.6%
2.37$750.23 million131,827155,779Earnings Report
Analyst Report
News Coverage
Dynagas LNG Partners LP stock logo
DLNG
Dynagas LNG Partners
$3.21
-1.8%
2.38$118.25 million32,74862,712Analyst Upgrade
Liberty Global plc stock logo
LBTYA
Liberty Global
$21.55
-0.3%
2.38$10.45 billion784,4641.30 million
Oxbridge Re Holdings Limited stock logo
OXBR
Oxbridge Re
$3.40
+3.0%
2.39$19.66 million2,88929,368Analyst Report
Grindrod Shipping Holdings Ltd. stock logo
GRIN
Grindrod Shipping
$17.77
+2.4%
2.41$342.07 million125,744182,796Analyst Report
News Coverage
Warrior Met Coal, Inc. stock logo
HCC
Warrior Met Coal
$29.11
+2.1%
2.43$1.50 billion1.00 million845,538Dividend Announcement
Analyst Downgrade
Short Interest ↑
Analyst Revision
News Coverage
Companhia Siderúrgica Nacional stock logo
SID
Companhia Siderúrgica Nacional
$2.97
+3.1%
2.43$4.12 billion3.78 million5.17 millionUpcoming Earnings
Short Interest ↓
News Coverage
VEON Ltd. stock logo
VEON
VEON
$0.49
2.44$857.81 million1.10 million1.08 millionNews Coverage
Gap Down
Olympic Steel, Inc. stock logo
ZEUS
Olympic Steel
$30.73
+0.7%
2.45$341.96 million77,21051,901Dividend Announcement
Analyst Downgrade
News Coverage
Matson, Inc. stock logo
MATX
Matson
$82.99
+1.7%
2.47$3.24 billion230,850314,367Earnings Report
Analyst Downgrade
Insider Selling
Himax Technologies, Inc. stock logo
HIMX
Himax Technologies
$6.93
-1.3%
2.49$1.21 billion1.54 million2.31 millionUpcoming Earnings
Barnwell Industries, Inc. stock logo
BRN
Barnwell Industries
$2.67
+2.3%
2.50$26.58 million44,08646,524Gap Up
Liberty Global plc stock logo
LBTYK
Liberty Global
$22.69
-0.4%
2.50$11.00 billion1.14 million1.93 million
Beazer Homes USA, Inc. stock logo
BZH
Beazer Homes USA
$15.05
-0.6%
2.54$470.69 million209,945350,201News Coverage
Gap Down
Arch Resources, Inc. stock logo
ARCH
Arch Resources
$124.83
+0.7%
2.55$2.32 billion317,342557,093Dividend Announcement
Callon Petroleum stock logo
CPE
Callon Petroleum
$37.51
+0.8%
2.55$2.31 billion1.71 million1.57 millionAnalyst Revision
News Coverage
360 DigiTech, Inc. stock logo
QFIN
360 DigiTech
$13.98
-5.0%
2.56$2.13 billion692,741635,942Short Interest ↑
Companhia Brasileira de Distribuição stock logo
CBD
Companhia Brasileira de Distribuição
$3.14
-0.6%
2.57$845.84 million687,9451.03 millionAnalyst Upgrade
News Coverage
Gap Down
GSE Systems, Inc. stock logo
GVP
GSE Systems
$1.19
+2.2%
2.58$24.90 million16,51514,874
Annaly Capital Management, Inc. stock logo
NLY
Annaly Capital Management
$6.55
-1.1%
2.60$10.64 billion18.75 million30.95 million
Comstock Holding Companies, Inc. stock logo
CHCI
Comstock Holding Companies
$4.46
+0.9%
2.61$37.19 million5,6736,682
Friedman Industries, Incorporated stock logo
FRD
Friedman Industries
$9.54
+2.0%
4.74$70.26 million25,62331,546
Gerdau S.A. stock logo
GGB
Gerdau
$4.81
+3.7%
2.63$8.27 billion15.66 million16.25 millionDividend Increase
Options Volume
News Coverage
Alpha and Omega Semiconductor Limited stock logo
AOSL
Alpha and Omega Semiconductor
$42.62
-1.5%
2.63$1.15 billion247,078265,007Upcoming Earnings
Eagle Bulk Shipping Inc. stock logo
EGLE
Eagle Bulk Shipping
$50.99
+4.5%
2.63$698.21 million628,363291,657Analyst Report
News Coverage
Gap Up
High Trading Volume
Pangaea Logistics Solutions, Ltd. stock logo
PANL
Pangaea Logistics Solutions
$4.80
+4.6%
2.64$220.83 million186,566246,324Upcoming Earnings
Analyst Report
Euroseas Ltd. stock logo
ESEA
Euroseas
$25.25
+3.4%
2.65$184.19 million15,26029,913Upcoming Earnings
News Coverage
Gap Down
PBF Energy Inc. stock logo
PBF
PBF Energy
$30.06
+2.7%
2.66$3.63 billion2.62 million2.62 million
GEHI
Gravitas Education
$0.62
+5.0%
2.68$17.31 million1,0964,579Gap Up
Genworth Financial, Inc. stock logo
GNW
Genworth Financial
$4.22
+0.7%
2.69$2.13 billion2.32 million2.93 millionEarnings Report
FS KKR Capital Corp. stock logo
FSK
FS KKR Capital
$22.00
+0.9%
2.71$6.25 billion603,626952,835Upcoming Earnings
News Coverage
NRG Energy, Inc. stock logo
NRG
NRG Energy
$38.46
-1.7%
2.71$9.13 billion3.85 million3.35 millionEarnings Report
News Coverage
Castor Maritime Inc. stock logo
CTRM
Castor Maritime
$1.70
+1.2%
2.74$152.93 million952,270588,233
Seanergy Maritime Holdings Corp. stock logo
SHIP
Seanergy Maritime
$0.72
+3.6%
2.75$109.50 million2.97 million2.30 millionShort Interest ↑
News Coverage
Cleveland-Cliffs Inc. stock logo
CLF
Cleveland-Cliffs
$18.31
+2.1%
2.75$9.47 billion12.35 million16.67 millionShort Interest ↑
Analyst Revision
Live Ventures Incorporated stock logo
LIVE
Live Ventures
$34.34
+3.9%
2.77$105.97 million7,8526,444Upcoming Earnings
Banco BBVA Argentina S.A. stock logo
BBAR
Banco BBVA Argentina
$2.70
+4.2%
2.78$551.44 million505,964724,010Positive News
Gap Down
Mr. Cooper Group Inc. stock logo
COOP
Mr. Cooper Group
$44.47
+1.0%
2.79$3.19 billion315,712536,183Short Interest ↑
Global Ship Lease, Inc. stock logo
GSL
Global Ship Lease
$19.62
+2.8%
2.80$715.42 million914,384761,312Dividend Announcement
Analyst Report
Short Interest ↑
Analyst Revision
News Coverage
Capital Product Partners L.P. stock logo
CPLP
Capital Product Partners
$13.85
-0.1%
2.82$273.44 million118,516113,223Negative News
Chord Energy Co. stock logo
CHRD
Chord Energy
$124.77
+3.9%
2.82$2.45 billion479,829467,979Dividend Announcement
Gap Down
GoPro, Inc. stock logo
GPRO
GoPro
$6.56
-4.1%
2.85$1.03 billion2.98 million1.87 millionEarnings Report
Analyst Report
Analyst Revision
News Coverage
Gap Down
Woori Financial Group Inc. stock logo
WF
Woori Financial Group
$27.32
+0.9%
2.85$6.63 billion43,32151,548
Centrus Energy Corp. stock logo
LEU
Centrus Energy
$38.80
+17.3%
3.40$562.17 million284,528113,464Analyst Downgrade
News Coverage
Gap Up
High Trading Volume
TSR, Inc. stock logo
TSRI
TSR
$9.35
+0.6%
2.87$20.07 million26,2439,078High Trading Volume
Good Times Restaurants Inc. stock logo
GTIM
Good Times Restaurants
$3.37
-2.2%
2.88$42.08 million1,0678,022Upcoming Earnings
News Coverage
Gap Down
Century Communities, Inc. stock logo
CCS
Century Communities
$49.58
-0.6%
2.90$1.60 billion199,134258,628Gap Down
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.

What is the Price/Earnings (P/E) Ratio?

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.

How Do You Calculate P/E Ratio?

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.

How is Trailing P/E Different From Forward P/E?

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.

Should Investors Avoid Companies With a Negative P/E Ratio?

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,

What is a Good P/E Ratio?

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.

How to Analyze P/E Ratio

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.

Why the Price-Earnings Ratio Is Important

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.

What is the Difference Between Price-to-Earnings and Price-to-Book (P/B)?

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.

Bottom Line

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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