Price-earning (P/E) ratio is commonly used while taking investment decisions by many investors. P/E ratio is the ratio between the market price and earnings per share. The ratio indicates the market price of a share vis-a-vis its earnings.
According to one view, lower the P/E ratio, the better it is for investors, as there are chances of higher appreciation.
According to others, it is the other way round. Of course, there are exceptions to these theories as well. P/E ratio is calculated as market value of each share divided by its earnings. The earnings per share can be taken for the full year or for the last few quarters. It can also be taken from estimates of earnings expected in the next few quarters.
Sometimes, the P/E ratio is referred to as the ‘multiple’, because it shows how much investors are willing to pay per rupee of earnings. In general, a high P/E means high projected earnings in the future. However, a P/E ratio actually doesn’t tell you a whole lot by itself. It’s usually only useful while you compare companies in the same industry, or a company’s own historical P/Es.
The higher the P/E, the more you are paying for an estimated stream of earnings. Investors usually are willing to pay a higher P/E for companies they judge will be growing faster than the norm.
AstraZeneca plc (ADR) (NYSE:AZN) at $33.47 has one of the highest P/E ratio of all companies trading on the U.S. Exchanges. It is trading at 49.96 times the prior four quarters’ worth of earnings. The current share price is up 13.46% from its 52-week low and down -7.55% versus its peak. The company has a market cap of $83.52 billion and is part of the Healthcare and Pharmaceuticals – NEC industry. The key competitors include Eli Lilly and Co(NYSE:LLY), Merck & Co., Inc.(NYSE:MRK) and AbbVie Inc(NYSE:ABBV).
AstraZeneca PLC engages in the discovery, development, and commercialization of prescription medicines for the treatment of cardiovascular, metabolic, respiratory, inflammation, autoimmune, oncology, infection, and neuroscience diseases worldwide. Its products include Crestor for dyslipidaemia and hypercholesterolemia; Seloken/Toprol-XL to control hypertension, and heart failure and angina; Onglyza for diabetes mellitus; Iressa for non-small cell lung cancer; Faslodex for breast cancer in post-menopausal women; Zoladex for prostate cancer, breast cancer, and certain benign gynaecological disorders; Pulmicort Turbuhaler/Pulmicort Flexhaler for treating asthma; Symbicort for maintenance treatment of asthma and chronic obstructive pulmonary disease; Nexium to treat acid-related diseases; Seroquel XR for the treatment of schizophrenia, bipolar disorder, major depressive disorder, and generalised anxiety disorder; and Synagis for the prevention of serious lower respiratory tract disease caused by respiratory syncytial virus in paediatric patients. Noble Energy, Inc. (NYSE:NBL) has dropped -24.41% on the year, and it also has the high P/E ratio on Wall Street at 425.00. The stock, currently at $34.00, is up 17.32% from its 52-week low and down -35.78% versus its peak. It trades at an average volume of 4.19 million shares and has a beta of 1.45. The company is down -27.04% year-to-date as of the recent close with a market cap of $14.17 billion. It is part of the technology sector and electronics industry. The key competitors include Marathon Oil Corporation(NYSE:MRO), Hess Corp.(NYSE:HES) and Devon Energy Corp(NYSE:DVN).
Noble Energy, Inc., an independent energy company, engages in the acquisition, exploration, and production of crude oil, natural gas, and natural gas liquids worldwide. Its principal projects are located in onshore DJ Basin and Marcellus Shale, the United States; the deepwater Gulf of Mexico; offshore West Africa; and offshore Eastern Mediterranean. As of December 31, 2014, the company had approximately 1,404 million barrels oil equivalent of total proved reserves. Noble Energy, Inc. was founded in 1932 and is headquartered in Houston, Texas.
Another highest P/E belongs to Yahoo! Inc. (NASDAQ:YHOO), which is trading at 138.52 times the prior four quarters’ worth of earnings. The share price has zoomed 0.13% this year. The company has a market cap of $32.49 billion and is part of the Technology sector and Search Engines industry. The key competitors include SINA Corp(NASDAQ:SINA), Baidu (IAC/InterActiveCorp (NASDAQ:IACI) and Rediff.com India Limited (ADR)(NASDAQ:REDF). The stock with recent price of $34.63 trades at an average volume of 34.49 million shares. The share price is up 27.32% from its 52-week low and down -32.99% versus its peak. It has a beta of 1.40.
Yahoo! Inc. provides search and display advertising services on Yahoo properties and affiliate sites worldwide. The company offers Yahoo Search that serves as a starting point to navigate the Internet and discover information; and Yahoo Answers, which enables users to seek, discover, and share knowledge and opinions across mobile phones, tablets, and desktops. It also provides Yahoo Mail that connects users to the people and things; Yahoo Messenger, an instant messaging service; and Yahoo Groups, which allows users to join groups based on shared interests and involvements.