What is price-earnings ratio?
It is one of the criteria to follow in order to know if the stock is good or not. It can show the number of years it will take current earnings to reach the market price. It's figured by dividing the current price per share by the earnings per share. Example: If the current price is 6 pesos and the earnings per share is 24 centavos, then it's P/E ratio would be 25, this means it takes for you 25 years to recoup your investment of 6 pesos. According to studies there is no ideal P/E ratio, a stock with a high P/E may seem overpriced , the company maybe growing so fast, while a stock with low P/E may seem like a bargain but watch out the company may have some problems which might hurt or decrease future earnings. The lower the P/E , the more the stock is being shunned by the market or by the investing public. Check the company properly if you intend to buy stocks with a very low P/E.
Example of a company with a high P/E
For illustration only - Suppose first metro share price is 20 pesos and it earns 1 peso per share last year = so its price-earning ratio is 20.
share price = P20.00
earning/share = P1.00
20.00 stock price divide by 1.oo EPS = P/E of 20
Example of a company with a low P/E
For illustration only - Suppose San Miguel Corp. share price is P43.50 and it earns 3.36 per share last year = so its price-earning ratio is 12.946
share price = P43.50
earning /share = P3.36
43.50 stock price divide by 3.36 EPS = P/E 12.946
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