What is the Price-Earnings ratio (P/E)?

The P/E ratio? A tool that helps investors decide if a stock is worth buying 🔍. It shows how much people pay for each real that a company earns. It's that simple.

How to calculate P/E?

The account is easy: P/E = Share price ÷ Earnings per share (EPS)

The EPS comes from the total profit after deducting taxes and preferred dividends, divided by the shares in the market. Nothing complicated.

Types of P/E that you may not know 📊

• P/L trailing: look at the last 12 months. What has already happened.
• P/E forward: bets on the future. Next 12 months.
• Absolute P/E: the pure number.
• P/E ratio: comparison with other companies in the sector.

How to understand this number 🧠

High P/E? It seems that people expect growth. Low? The stock may be cheap. Or facing problems.

What is considered high or low varies by sector. Tech companies tend to have high P/E ratios. On the other hand, utility companies do not.

Why is so much emphasis placed on P/E?

The number helps to:

• Find cheap stocks 🎯
• See how the company has evolved
• Compare with others in the same field

Not everything is rosy

The P/E fails sometimes:

• Company in the red? Forget it.
• Does not show different growth rhythms.
• Smart accountants can cook the books.
• And the debts? And the cash? Doesn't even see.

Better to use together with other numbers. Revenue, margin, debts... that kind of thing.

P/E in cryptos? 🌐

Don’t stick too much. Cryptocurrencies don’t release profit reports like normal companies. But DeFi projects that charge fees are already playing with similar ideas 💸.

Is there a perfect P/E? 🚀

No way! It depends on so many things... A great P/E ratio for a traditional company can be terrible for a rapidly growing startup.

The trick is to compare with similar companies and think about the future. It seems that analyzing the P/E along with other indicators is the smartest move 🌕.