Some Famous Numbers - Deepstash

Some Famous Numbers

THE PRICE/EARNINGS RATIO

We’ve gone on about this already, but here’s a useful refinement: The p/e ratio of any company that’s fairly priced will equal its growth rate.

I’m talking about growth rate of earnings here. How do you find that out? Ask your broker what’s the growth rate, as compared to the p/e ratio.

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If the p/e of Coca-Cola is 15, you’d expect the company to be growing at about 15 percent a year, etc.

But if the p/e ratio is less than the growth rate, you may have found yourself a bargain. A company, say, with a growth rate of 12 percent a year (also known as a “12-percent grower”) and...

P/E Ratio (Price per Earning)

P/E Ratio (Price per Earning)

Let's say that a company's stock trades for $100 and that the company has earnings per share (EPS) of $6.50 over the last 12 months. 

We can calculate a trailing ("last 12 months") P/E ratio for that stock by simply dividing the stock price ("P") by the EPS ("E"), so 100/6.50 equals about 1...

Growth-rate to PE ratio

A slightly more complicated formula enables us to compare growth rates to earnings, while also taking the dividends into account.

Find the long-term growth rate (say, Company X’s is 12 percent), add the dividend yield (Company X pays 3 percent), and divide by the p/e ratio (Company X’s is ...

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