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the firm’s growth perspective.
● If the firm has no earning, P/E is high… or
when there is a significant earnings growth. forward P/E
● Alternative P/E => forward
● Apple computer in 2004:
○ Current price is $14.80
Earning last 12 months is $0.05
Trailing (or current) P/E = ?
Industry PE is 28
Is company overvalued?
The predicted earning for that year was $0.27 per
○ Therefore forward P/E = 55 P/E applications
● Usually, the analysts use P/E as a valuation tool.
● They compare multiples (ratios) across the
● See the recent data for apple
http://finance.yahoo.com/q/ae?s=aapl P/E Apple and peers AAPL
P/E Industry Sector S&P
500 12.50 17.74 14.41 6.32 PEG ratio
● P/E is higher for a company with a higher
● Thus using just the P/E ratio would make highgrowth companies appear overvalued relative
● It is assumed that by dividing the P/E ratio by
the earnings growth rate, the resulting ratio is
better for comparing companies with different
growth rates PEG ratio (2)
PEG = (P/E) / (5 yr future earnings growth rate)...
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- Spring '14