you don't say how you use P/E ratios. By themselves these ratios have limited value. It is the P/E ratio of one company in relationship to values of P/E in the company's peer group that could be important. P/E ratios are nothing more than investor expectations....a high P/E simply means that the investors anticipate that the company will be destined on getting higher earnings so they are willing to pay a
premium for that stock because of this. A low P/E ratio shows a company who most investors feel is past its prime even though it has relatively high earnings.
the problem with Fundamental data is that you never get a consistent value when you look at different information sources.
let's look at Bank of America [NYSE:BAC] as an example
Bloomberg : P/E = 10.70
Marketwatch : P/E = 20.19
Toronto Globe and Mail (major Canadian financial info source) P/E = 10.90
Ahhhh so the MarketWatch value is obviously wrong...
NOT...Its P/E is calculated on a trailing 12 months whereas the other two are calculated on ESTIMATED forward earnings. Which is the right one? {shrug} to me an estimate is basically useless as it is a guess...the trailing value is at least based on real data. BUT as you can see whether the number is based on trailing or estimated earnings is not always reported.
AND Why are not all numbers that are reported based on the same format the same??? well on the estimated data it depends on it depends on who does the estimate....but that aside since the Price is variable in that ratio there is no uniformity as to when the ratio was calculated.
That is not all....what would be important to me (and I do pay attention to Fundamental data from time to time) would be the TREND in the ratio....not the one number.
Let us take two companies that are producing gold mines.
Company A has a current P/E ttm (trailing 12 months) of 80
Company B has a current P/E ttm (trailing 12 months) of 30
so
OBVIOUSLY Company A is the most favoured companies by investors...right? Not necessarily so IMHO
What if over the past 5 years the P/E ttm for Company A's P/E declined from 200 to 80 while Company B's P/E rose from 5 to 30? Which one is the better P/E now??? You would have to figure out WHY Company B's value rose while the other is falling.
Nobody produces such information??? correct but it is simple math that can be calculated from annual financial reports
for example for Gold Corp [GG] here is a summary of its last five financial reports
at the bottom is the Earnings per Share for the previous year and All you need is the Price of the share on Dec 31 for each year and do the division.
By doing it yourself YOU KNOW the information is accurate and consistent.
There is a lot that can be done with Financial ratios but you will rarely find consistency with the data and few ever talk about trending these ratios.
Oh Yeah my financial education: 20+ years of self study....
