Название: Cotter On Investing
Автор: John Cotter
Издательство: Ingram
Жанр: Ценные бумаги, инвестиции
isbn: 9780857191625
isbn:
1 For individual stocks. It can be used to compare the relative value of the current price of one share against another share, or against an index or sector.
2 For overall market levels. It can be used as a means to evaluate how cheap or expensive a whole market, or a sector, is compared to their long-term average or to other markets or sectors.
Why is it important?
The relationship between the value of a company and its level of profits is obviously a very important one. The correlation between share price growth and earnings per share growth is positive and in the long-term very close. Clearly, as the profits of a company rise the price of its shares will ultimately follow – the problem for investors is the exact timing of the share price response to rising profits.
If we can forecast the profits of a company (and this is often possible) and we understand the relationship between a company’s profit growth and share price growth then this provides a possible solution to forecasting future share prices.
Calculating the PE
The PE ratio basically compares the market value of a company with its profits.
To calculate the PE we use the share price to represent the market capitalisation and earnings per share (EPS) to represent profits. The formula for the PE ratio is:
PE ratio = share price/earnings per share
For example, if a company’s share price is 36p and its earnings per share are 4p, its PE ratio is nine (sometimes expressed as “9x” – meaning “nine times”).
If a company does not have earnings (i.e. they are making a loss) then a PE can not be calculated.
One way of looking at the PE ratio is as representing the number of years required for the earnings per share to cover the share price.
Let’s look at two companies:
Company A | Company B | |
Share price(p) | 100 | 100 |
Earnings per share(p) | 20 | 50 |
PE | 5 | 2 |
Company A has a share price of 100p and EPS of 20p; it therefore has a PE of 5 (100/20); it would take 5 years for the earnings to cover the price paid for the share.
Company B has a share price of 100p and EPS of 50p; it therefore has a PE of 2 (100/50); it would take 2 years for the earnings to cover the price paid for the share.
All things being equal (which, admittedly, they rarely are in investing) an investor would prefer to buy company B rather than company A because the earnings will pay for the price paid in just two (instead of five) years.
One way to think of this is as an investor buying the whole company. In the case of company A, it will take five years for the company’s earnings to repay the price paid to buy the company, But for company B it will only take two years. Which company would you prefer to buy?
In this context, company B is called cheaper than company A because its PE ratio is lower.
Unfortunately, nothing in life is as simple as you would like it to be and few things are as difficult as keeping things simple. Let’s first of all see how this position becomes more confused before hopefully I reach a simple and logical conclusion that will help guide your future use of the PE.
Different types of PE
When calculating PE ratios in real life, it is easy to find a company’s share price, but what figure should we use for EPS? For example, should we use the company’s earnings from last year or its forecast earnings for this year? Because of the different values of EPS that can be used, there are three basic types of PE ratio. All are based on the current price, but one is based on previous earnings, one is based on forecast earnings and one is based on average earnings.
1 Trailing PE: This is based on the actual earnings for the previous 12 months and is sometimes referred to as the historic PE.
2 Cyclically adjusted PE: This uses earnings averaged over periods as long as ten years; often referred to by its acronym CAPE.
3 Forward PE: This is based on the forecast earnings for the coming 12 months and is often referred to as the forecast PE.
The following table gives some sample real-life data for trailing and forecast PEs:
Company | Share price | Trailing EPS | Trailing PE | Forecast EPS | Forecast PE |
ARM Holdings | 545 | 6.44 | 84.6 | 9.96 | 54.7 |
Aviva | 434 | 50.40 | 8.6 | 64.55 | 6.7 |
Severn Trent | 1441 | 130.64 | 11.0 | 92.56 | 15.6 |
Tesco | 388.5 | 26.29 | 14.8 | 32.72 | 11.9 |
For example, in the previous 12 months Tesco had an earnings per share of 26.29p, and at the time of writing its share was 388.5p; therefore its trailing PE was 14.8 (388.5/26.29). However, for the coming 12 months Tesco has a forecast EPS of 32.72p, which gives it a forecast PE of 11.9 (388.5/32.75).
So which is best?
Different people have different views. The trailing PE is one that is quoted most often in the financial press. The main advantage of this method is that you are dealing with facts, not forecasts. The CAPE has had, and still has, its followers; some notable ones include Benjamin Graham and Robert Shiller. The advantage of the CAPE is that it eradicates the possibility of the ratio being distorted by one year’s figures. A moving average over a minimum of five years should mean that the sample period includes at least one complete economic cycle. And this measure is supported by the logic that company and index ratings will in time revert to their mean.
While both of the preceding have merit and cannot be dismissed lightly, my first point of СКАЧАТЬ