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The cyclically adjusted price-to-earnings ratio, commonly known as CAPE, [1] Shiller P/E, or P/E 10 ratio, [2] is a stock valuation measure usually applied to the US S&P 500 equity market. It is defined as price divided by the average of ten years of earnings ( moving average ), adjusted for inflation. [ 3 ]
The price earnings ratio (P/E) of each identified peer company can be calculated as long as they are profitable. The P/E is calculated as: P/E = Current stock price / (Net profit / Weighted average number of shares) Particular attention is paid to companies with P/E ratios substantially higher or lower than the peer group.
Robert Shiller's plot of the S&P composite real price–earnings ratio and interest rates (1871–2012), from Irrational Exuberance, 2d ed. [1] In the preface to this edition, Shiller warns that "the stock market has not come down to historical levels: the price–earnings ratio as I define it in this book is still, at this writing [2005], in the mid-20s, far higher than the historical average
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Stock A is trading at a forward P/E of 15 and expected to grow at 20%. Stock B is trading at a forward P/E of 30 and expected to grow at 25%. The PEG ratio for Stock A is 75% (15/20) and for Stock B is 120% (30/25). According to the PEG ratio, Stock A is a better purchase because it has a lower PEG ratio, or in other words, its future earnings ...
Liquidity ratios measure the availability of cash to pay debt. [3] Efficiency (activity) ratios measure how quickly a firm converts non-cash assets to cash assets. [4] Debt ratios measure the firm's ability to repay long-term debt. [5] Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. [6]
The 'PEG ratio' (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share , and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus, using just the P/E ratio would make high-growth ...