#79 - PE Ratio Explained (CBM Basics)

<p>[podcast_subscribe id="111"]</p> <p><strong>What is a PE Ratio?</strong></p> <p>It’s one of the most common valuation metrics.</p> <p>The price-to-earnings (P/E) ratio relates a company's share price to its earnings per share.</p> <p>A high P/E ratio could mean that a company's stock is overvalued, or else that investors are expecting high growth rates in the future.</p> <p>Companies that have no earnings or that are losing money do not have a P/E ratio because there is nothing to put in the denominator.</p> <p><strong>How to calculate?</strong></p> <p>Price (price of stock or market cap) / Earnings per share (net income ttm / outstanding shares)</p> <p><strong>When to use it?</strong></p> <p>As you can see, PE ratio only shows data for a year (TTM). It doesn’t give you the full picture. It’s a great way to compare businesses in the same industry and how they performed in the year.</p> <p>The other way to use PE is to compare it against the S&amp;P standard. The standard S&amp;P PE has been 15. Considering risk factors, analysts usually consider 20 to be a good PE ratio. If your business has a PE below 20, it is good.</p> <p><strong>Useful links:</strong></p> <p>All Streaming Platforms for Cold Brew Money Podcast: <a href="https://coldbrew.money/links/"><u>https://coldbrew.money/links/</u></a></p> <p>About Cold Brew Money: <a href="https://coldbrew.money/about/"><u>https://coldbrew.money/about/</u></a></p> <p>All Cold Brew Money Episodes: <a href="https://coldbrew.money/episodes/"><u>https://coldbrew.money/episodes/</u></a></p> <p>Cold Brew Money Tools: <a href="https://coldbrew.money/tools/"><u>https://coldbrew.money/tools/</u></a></p> <p>Buy Us A Coffee: <a href="https://www.buymeacoffee.com/coldbrewmoney"><u>https://www.buymeacoffee.com/coldbrewmoney</u></a></p> <p><strong>Hosts:</strong></p> <p>Atit Kothari: <a href="https://kothariatit.com/"><u>https://kothariatit.com/</u></a></p> <p>Tapan Desai: <a href="https://tapandesai.com/"><u>https://tapandesai.com/</u></a></p> <p>Atit’s Newsletter: <a href="https: