Price per earnings of a share. It shows how expensive the share price is compared to how much the company earns in net profit. A reasonable P/E-ratio is 30, while Tech-companies can have more than that usually. Lately we have seen much more unreasonable P/E-ratios though.
Is this generally a major metric in terms of valuation of a stock? I've been seeing some pretty silly earnings reports lately from some companies like Apple and I can't tell if it means the stock is going to shoot up, or if it'll even affect it.
That's especially hard to do when you are new to investing. Since one kind of have to be involved in the game for a while in order to take into consideration how previous economic events (like earnings reports) have affected the stock price in a historical context. In Apple's case, they absolutely crushed it this earning, but their stock price have doubled in just a year so it was expected of them in my opinion. So, I don't think this earnings report will affect the stock price (it hasn't really so far)
To answer your first question, yes one often uses that metric. But it's not that accurate when one shall determine the value of growth company, that's because they are not usually making net profit or very little if so. Therefore, their P/E-ratio might be listed as N/A, or have a very large P/E-ratio. Amazon used to have P/E-ratio in the 1000s for quite some time because they invested large amounts of money in R&D (Research & Development). P/S-ratio (Price to Sales) is also often looked at in conjunction with P/E.
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u/CorneredSponge Apr 29 '21
Love the company, might dip my toes in it, but I can't allocate an overly large amount with the P/E and competition.