This number tells you how many years worth of profits you’re paying for a stock. To calculate PE, divide the stock price by earnings per share EPS.
Rapidly growing companies often have high PE ratios, for the opposite reason. Investors are more willing to pay a premium when they expect strong future profits. Tesla and Paypal are two examples, with PE multiples of 50 and 36, respectively.To evaluate an individual stock’s PE ratio, compare it to competitors. You should also compare a stock’s current PE with its average multiple over the past three, five or 10 years.
Forbes’ top investment experts share 7 overlooked stocks in this exclusive report, 7 Best Stocks To Buy For The Second Half of 2023. Click here to download it now.The price-sales ratio divides a stock’s market capitalization by total sales over the past 12 months. This metric was popularized by investment manager and longtime Forbes columnist, Ken Fisher. It tells you how much you are paying for every dollar in annual sales.
The idea is to approximate the money left if the business shut down and sold everything. As with most price multiple metrics, you should compare a stock’s current price-to-book to its historical averages. ROE is useful for measuring management’s effectiveness. The downside is that it’s not instructive for young companies that aren’t profitable. Uber, for example, has an ROE of -44%.
A higher ROA shows the company can grow profits more efficiently from a given base of assets. On the other hand, companies with a comparatively low ROA will need to borrow or raise equity to achieve the same amount of profit.
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