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Overview
In this article, we will go through some questions like:
What is the Price-earnings (P/E) ratio？
How to use the P/E ratio?
How to judge whether the P/E ratio is high or low？
Limitations of using P/E Ratio？
How to look up the P/E ratio on Moomoo?
What is the Price-earnings(P/E) ratio?
The Price-earnings ratio (P/E ratio) is one of the most commonly used indicators to assess whether the stock price level is reasonable.
The formula is as follows：
Source：Moomoo
Key takeaway:
The company's stock price is driven by its profitability. The P/E ratio is a measure for investors to judge whether the stock is expensive.
A low P/E = expected profit will decrease.
A high P/E = expected profit will increase.
Today we are going to introduce two P/E ratios, one is P/E (TTM) and the other is P/E (Static). The difference is because EPS comes in two main varieties.
Source：Moomoo
Generally speaking, investors use P/E (TTM) more, because the lag effect is weaker and more accurate.
How to use the P/E ratio?
For example: Let's try this out by calculating the P/E ratio for Apple.
Source：Moomoo
How to judge whether the P/E ratio is high or low？
Apple has a P/E ratio of 43.05, which means investors are willing to pay up to 43 times its earnings per share to own it. How do we know is that too expensive or too cheap?
You can use some benchmarks for comparison：
Source：Moomoo
Ultimately, it can depend on what Apple is capable of accomplishing in terms of future earnings.
Apple with a 43 P/E ratio has a higher growth rate than its peers, maybe because the market's expectation of Apple is optimistic in the future.
Limitations of using P/E ratio？
If a company is developing rapidly but is not profitable, the P/E ratio will be negative here. Therefore, the P/E ratio can only be used for profitable companies, and it is best used for stable profitable companies.
If you want to know more about indicators, you can click on the article below. And Moomoo News Team will introduce other indicators in the future.
About P/B ratio：How to tell when a stock is undervalued?
How to look up the P/E ratio on Moomoo?
Take $Apple Inc(AAPL.US)$ for an example:
Go to the Quote page
Source: The Motley Fool, Investopedia
Editor: Mia