PE Ratio, P/E, PER & many variations of it means the Price Over Earning Ratio. Price here indicates the Market price. Earning means EPS/Earning per share, which is Nett Profit/Total number of shares. Nett profit taken is yearly, not quarterly.
Example:-
F&N Stock Price : RM 17.24
Earning per share: RM 1.07
PE ratio : Price/EPS 17.24/1.07 16.11
Which means, if you buy the share of F&N, you are willing to pay 16x its yearly earnings.
So, is it alot to pay for? Is it Expensive to buy F&N? The answer depends on several factors. Blue chip stocks usually command for a higher PE. check its P/E for the past 5 years to get a feel of what this stock commands for.
Let's find out.
PE Ratio of F&N at Financial year closing:
2010: 7.4
2009:16.4
2008:19.34
2007:18.76
2006:15.46
*Info from EquitiesTracker.com
Consumer stocks such as F&N deliver steady profits, dividends and growth. Thus, people are generally more willing to pay a higher price for it, driving up the PE.
But what about stocks that have single digit PE? Isn't that a bargain?
And does that hot stock deserve a PE of over 20?
PEG Ratio shall shed some light on this. But that is for discussion on another day.
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