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Perhaps it would help if you could explain why it's wrong instead of calling it utter nonsense, because it matches my understanding of P/E ratio. Here's the ex
by js2 9y ago
Perhaps it would help if you could explain why it's wrong instead of calling it utter nonsense, because it matches my understanding of P/E ratio.
Here's the example from the same wikipedia link:
As an example, if stock A is trading at $24 and the earnings per share for the most recent 12-month period is $3, then stock A has a P/E ratio of 24/3 or 8. Put another way, the purchaser of the stock is investing $8 for every dollar of earnings.
Now say the company behind stock A is paying out 100% of its earnings as a yearly dividend of $3/share and is taking no additional investment, so it isn't growing. It's going to take 8 years (the P/E) to recoup the $24.
- whatok 9y agoI've never seen a years recouped metric in reference to P/E used in a professional context ever. You don't see it because you're holding everything static. This makes no sense (particularly in the case of growth stocks) because the whole point is that you're expecting growth in earnings and that number is going to wildly change over time periods and what earnings you use. One of the biggest reasons why P/E is a relevant metric is that it enables you to easily compare stocks between one another.