This page lists companies that have unusually high 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 PE ratio.
This page contains a list of the companies with the highest P/E ratios. Alternatively, users can sort stocks by the lowest P/E ratios by clicking on the table item menu.
With an All Access MarketBeat subscription, it’s possible to filter this list by MarketRank, media sentiment, and analyst consensus.
Regular users can filter it by country, sector, and market cap.
Consider this table a birds-eye view of how companies are evaluated compared to their price to earnings, which may help you spot potentially under and over-valued opportunities.
About the P/E ratio
The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple. The P/E ratio is just one way to measure a stock, but it's a very popular one.
Many investors use the P/E ratio as a way to compare companies within the same industry quickly. The higher the P/E ratio, the more expensive the stock is relative to its earnings. The P/E ratio can be calculated for any company that has stock that trades on a public exchange. All you need is the current share price and the company's most recent earnings per share (EPS) number. The EPS number can be found on the company's income statement.
Here's the formula for the P/E ratio: P/E Ratio = Share Price ÷ Earnings per Share (EPS) For example, let's say Company XYZ is trading at $50 per share, and it reported EPS of $5 last quarter. Company XYZ's P/E ratio would be 10 (($50 ÷ $5) = 10).
A higher P/E ratio means that investors pay more for each dollar of earnings. A lower P/E ratio means that investors pay less for each dollar of earnings.
The P/E ratio doesn't tell you the whole story, though. A company with a high P/E ratio might be expected to grow its earnings faster than a company with a low P/E ratio.
A company with a low P/E ratio might be in a declining industry or simply be a value stock trading at a discount to its intrinsic value. The P/E ratio is just one metric that should be considered when valuing a stock. Looking at a company's financial statements, business model, competitive advantages, and growth prospects is important before making an investment decision.
How to compare the P/E ratio
P/E ratios can also be used to compare the valuations of different companies. For example, if Company A has a P/E ratio of 20 and Company B has a P/E ratio of 10, it may be because Company A is seen as being more valuable than Company B.
Other ratios that work with the P/E ratio
While there is no perfect ratio, certain ratios work well with the P/E ratio to provide a more complete picture of a company's valuation.
The first ratio is the price-to-earnings growth (PEG) ratio. This ratio measures the P/E ratio of the company's earnings growth rate. A lower PEG ratio indicates that the stock is undervalued with its earnings growth.
The second ratio is the enterprise value to EBITDA (EV/EBITDA) ratio. This ratio measures the value of a company's enterprise (the market value of its equity plus the value of its debt) concerning its EBITDA (earnings before interest, taxes, depreciation, and amortization).
The third ratio is the price-to-book (P/B) ratio. This ratio measures the market price of a stock in relation to the company's book value (the value of its assets minus its liabilities).
The fourth ratio is the price to sales (P/S) ratio. This ratio measures the market price of stock about the company's sales.
The fifth ratio is the dividend yield. This ratio measures the annual dividend paid by a company concerning its stock price.
While no single ratio can tell you everything you need to know about a stock, these five ratios can give you a better idea of whether a stock is undervalued or overvalued.
What else to consider besides the P/E ratio
Earnings are just one part of the story regarding investing in stocks. Here are some more things to consider:
- Revenue and earnings growth: A company's share price will eventually follow its earnings growth. Therefore, looking at a company's revenue and earnings growth over time is important to get an idea of where the stock price might be headed.
- Profit margins: A company's profit margin is a good indicator of its competitiveness and efficiency.
- Debt levels: A company with a large amount of debt may be at risk of defaulting on its loans, which could trigger a sharp decline in its stock price.
- Cash flow: A company's ability to generate cash flow is important because it indicates its ability to pay its bills and reinvest in its business.
- Analyst ratings: Analyst ratings can give you an idea of where a particular stock might be headed.
Common mistakes with the P/E ratio
The following are some of the most common mistakes made when using the P/E ratio:
- Ignoring the difference between trailing and forward P/E ratios
One of the most common mistakes when using the P/E ratio is comparing apples to oranges, i.e., comparing a trailing P/E ratio with a forward P/E ratio.
A trailing P/E ratio is based on historical earnings and is more reflective of a company's past performance. In contrast, a forward P/E ratio is based on estimated earnings and is, therefore, more indicative of a company's future prospects.
- Failing to adjust for differences in earnings
Another common mistake made when using the P/E ratio is failing to adjust for differences in earnings. For example, a company that is reporting higher earnings due to one-time items, such as the sale of a subsidiary, should not be compared with a company that is reporting more sustainable earnings growth.
- Comparing P/E ratios across different industries
Another mistake often made when using the P/E ratio is to compare P/E ratios across different industries. This is not an apples-to-apples comparison because different industries have different characteristics and growth prospects.
- Failing to consider the impact of share repurchases
Another mistake made when using the P/E ratio is to fail to consider the impact of share repurchases. When a company repurchases its own shares, it reduces the number of outstanding shares, which raises the earnings per share (EPS).
This means that a company with a high P/E ratio may not be as overvalued as it appears if it has been actively repurchasing its own shares.
- Failing to consider the impact of dilution
Another mistake made when using the P/E ratio is failing to consider the impact of dilution. Dilution can occur when a company issues new shares, or when existing shareholders convert their shares into new shares.
This increases the number of shares outstanding and, all else being equal, reduces EPS. This means that a company with a low P/E ratio may be more overvalued than it appears if it has been diluting its shareholders.
Disadvantages of using P/E ratio
Despite the ratio’s usefulness, there are a few potential problems with using the P/E ratio as a primary investment metric:
1) The P/E ratio does not consider the company's debt situation. A company with a high P/E ratio but a large amount of debt may be a riskier investment than a company with a lower P/E ratio but no debt.
2) The P/E ratio does not consider the company's cash position. A company with a high P/E ratio but a large amount of cash may be a safer investment than a company with a lower P/E ratio but no cash.
3) The P/E ratio is a backward-looking metric. It only tells us how much investors have been willing to pay for a company's earnings in the past. It does not necessarily indicate how much they will be willing to pay in the future.
4) The P/E ratio can be manipulated by management. For example, a company might choose to sell off a division that is not performing well to boost its P/E ratio.
5) The P/E ratio is affected by accounting choices. For example, a company might recognize revenue when a product is shipped, even if the customer has not yet paid, to boost its P/E ratio.
6) The P/E ratio does not take into account the company's growth prospects. A company with a high P/E ratio but poor growth prospects may be riskier than a company with a lower P/E ratio but strong growth prospects.
7) The P/E ratio is affected by the overall market conditions. For example, when the overall market is doing well, companies with high P/E ratios may be seen as more attractive investments than when the market is doing poorly.
8) The P/E ratio is affected by earnings variability. For example, a company with a high P/E ratio but volatile earnings may be a riskier investment than a company with a lower P/E ratio but more stable earnings.
How the P/E ratio can be manipulated
While earnings are a good indicator of a company's profitability, they can be manipulated by management through accounting techniques. As a result, the P/E ratio may not always accurately measure a company's stock price.
There are a number of ways that earnings can be manipulated. For example, companies can choose to recognize revenue when it is earned, rather than when it is received. This can artificially inflate earnings in the short term and make the P/E ratio look better than it would otherwise. Companies can also choose to defer expenses, which has the opposite effect.
In addition, companies can use accounting techniques to smooth earnings. This can make earnings look more consistent from one period to the next, even if the underlying business is not actually doing well. This can make the P/E ratio look artificially low.
