Market MakeHer Podcast 87. What Is P/E Ratio? Learn how to valuate a stock (Replay)
May 2, 2025
A clear walkthrough of how to use the price-to-earnings ratio to evaluate whether a stock is cheap or pricey. Short math lessons on trailing versus forward earnings and simple P/E calculations. Discussions on sector comparisons, market perception, growth justifying higher multiples, and when P/E might be misleading. Practical tips on using P/E with diversification, volatility, and research tools.
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P/E Ratio Defined Clearly
- P/E ratio is simply the stock price divided by earnings per share and shows how the market values future profit.
- It translates price into how many years of current earnings investors are paying for a share.
Prefer Forward Earnings Over Trailing
- Look at forward (FY) P/E rather than trailing (TTM) because future earnings drive price.
- Use analyst forward estimates to assess potential rather than relying only on past results.
High P/E Reflects Growth Expectations
- A higher P/E means the market expects higher growth; sectors like tech usually trade at higher multiples.
- Comparing a stock's P/E to its sector and the market reveals if it's relatively cheap or expensive.