A lower P/E ratio is generally considered better for buying because it suggests that the stock is undervalued relative to its earnings. Investors are paying less for each dollar of earnings, which could indicate a good value.
A: Lower is typically better. A company's current P/E ratio is its current stock price divided by its earnings per share (EPS) for the trailing 12 months — so it's backward-looking. The forward P/E ratio, in contrast, divides the stock price by next year's estimated EPS.
Usually, the market considers a P/E ratio below 20 as a good investment opportunity. 3. What if PE ratio is 40? A high P/E ratio, above 40, indicates investors willing to buy a stock at 40 times or more its earnings.
A high PE ratio implies that investors are prepared to invest the stock of stock at the premium level, expecting the future earnings growth rate. Having a lowered PE ratio could be an indicator of either an undervalued stock or a trade in which investors have smaller expectations for future advance.
P/E 30 Ratio Explained
A P/E of 30 is high by historical stock market standards.
There's no fixed answer for what is a good EPS. When comparing companies, it's helpful to look closely at how EPS is trending and how it matches up to competitor earnings. Remember that a higher EPS can suggest growth and stock price increases.
What does a good P/E ratio mean? In simple terms, a good P/E ratio is lower than the average P/E ratio, which is between 20–25.
If the relative P/E measure is 100% or more, this tells investors that the current P/E has reached or surpassed the past value.
A good PE (Price to Earnings) ratio in India usually falls between 12 and 20, indicating that a company's stock is neither overvalued nor undervalued. This range balances risk and growth potential, making it ideal for Indian stock market investment.
So, is a stock with a lower P/E ratio always a better investment than a stock with a higher one? The short answer is no. The long answer is that it depends on the situation.
The P/E ratio is calculated by dividing the market value price per share by the company's earnings per share (EPS). A high P/E ratio can mean that a stock's price is high relative to earnings and possibly overvalued. A low P/E ratio might indicate that the current stock price is low relative to earnings.
A negative P/E ratio means that the company reported either no earnings per share (EPS) or negative EPS. A negative P/E ratio suggests the company is currently unprofitable, as it has more expenses than revenue. It often means the company made no money over the last 12 months.
Is a 200 PE ratio good? A P/E ratio exceeding 200 implies that investors are willing to pay an exceptionally high price for each unit of earnings generated by the company. Hypothetically, it would take over 200 years to recoup the initial investment through the company's current earnings stream.
According to Tesla's latest financial reports and stock price the company's current price-to-earnings ratio (TTM) is 115.76. At the end of 2022 the company had a P/E ratio of 30.6.
P/E ratio, or price-to-earnings ratio, is a quick way to see if a stock is undervalued or overvalued. And so generally speaking, the lower the P/E ratio is, the better it is for both the business and potential investors. The metric is a company's stock price divided by its earnings per share.
As far as Nifty is concerned, it has traded in a PE range of 10 to 30 historically. Average PE of Nifty in the last 20 years was around 20. * So PEs below 20 may provide good investment opportunities; lower the PE below 20, more attractive the investment potential.
Fair Value Estimate for Nvidia
With its 2-star rating, we believe Nvidia's stock is overvalued compared to our long-term fair value estimate of $105 per share, which implies an equity value of roughly $2.5 trillion.
Now, here's the thing: If stocks' average EPS growth is rising over time, the stock market's P/E ratio needs to settle at a higher level, as well, to fairly price in the higher profit growth. That's why today's P/E ratio of around 30 isn't as alarming as it would have been in the past.
Apple (AAPL) PE Ratio (TTM) : 38.55 (As of Jan. 14, 2025)
Very low vs very high PE ratios
It is arguable that a PE of five or less is not a remarkable bargain. While it might look as if the company's prospects are being viewed too negatively, it is not a bad rule of thumb to filter out companies with a PE below this level.
A beta coefficient of less than 1 means that a stock tends to be less volatile than the overall market. Utility and real estate stocks are two examples of industries that typically have low betas. A beta coefficient of more than 1 means that a stock tends to be more volatile than the overall market.
Lower P/E Ratios can sometimes be a sign that a stock is undervalued relative to its earnings. A better way to tell if a stock has a good P/E Ratio is to compare it against industry averages and growth expectations. Average P/E Ratios generally range from 20 to 25.
There's no definition of a “good” or “bad” EPS value. But all other things being equal, the higher a company's EPS is, the better. The opposite is true for a company's price-to-earnings (P/E) ratio. In most cases, the lower a company's P/E ratio is, the better.
The average dividend yield of some of the top dividend stocks is 12.69%. The best dividend stocks are shares of well-established companies that increase their payouts over time. Investors can also choose to reinvest dividends if they don't need the stream of income. Here's more about dividends and how they work.