Session 15: PE Ratios

Look at the determinants of PE ratios and how to use them in comparisons across time, markets and companies.

[dylanjhirt]

My mouth was literally open at the end when he pulled out the regression model. Thanks for making PE interesting again, you reignited a kindling professor, thanks

[sanketj]

Prof. Aswath sir, you are simply awesome. Thanks for unleashing the true picture behind PEs.. 

[rajvaswani]

Like always a pleasure watching your videos professor, be it something as simple as P/E ratio, completely blown away. Reminds of an old quote, "The only true wisdom is in knowing you know nothing.” - Socrates.

[rameshbabunemani]

Excellent. Really the PE Ratio is explained in the most practical and professional way. Thank you very much sir.

[JoaquinBS]

Very good series of in depth analysis of the main relative valuation ratios. Love this part in your book as well.
As professor explains, this method is just a good starting point previous a DFCF Valuation.
Since relative valuation is a snapshot of the present conditions of the company, we have to keep in mind that the true way of delivering above average results is by anticipating (before "the market" does) events like turn arounds, regressions to the mean, margin improvements and growth rates; and for this, you need a story and project the future.

[FRANKWHITE]

Sir! Youre true value here in the internet. Thanks

[raffio]

thank you for that in-depth view of PE

[humbleinvestor]

The problem with finding a perfect value stock is like finding a perfect date, a disappointing proposition. Why should a company with excellent growth prospects sell at a low multiple, it's a direct contradiction to the efficient market theory. P/E ratio is too narrow a metric to give a meaningful answer to the critical question of predicting future earnings of a company that Mr.Market really cares about.

[shivkuma]

Prof. Damodaran: two questions.
1. What is the "growth" rate g in the formula? Is it stable growth (from terminal value) or some blend of that and the short term growth pre-terminal value ?
2. If you use FCFE for potential payout, it would imply no reinvestment, and hence would not support any growth. How do you handle that nuance ?

[OneForTheIrish]

at 12:43 : there is no Hanson Natural on the table listed.

[AlexVoxel]

I spent 5 min trying to find Hanson Natural lol

[shivkuma]

Professor, Excellent analysis and insight! Would you consider a few sectors and drilling down on P/E ratios vs DCF and giving insights into why certain sectors command the high PEs, despite low operating/net margins... It would be interesting the drivers of potential re-rating of P/E ratios of sectors. It may also be interesting to see if sectors with similar P/E ratios tend to share some operating or strategic characteristics. For cyclicals does sector P/E ratios across different times of the cycle illuminate anything about how the market sees beyond the cyclicality and prices residual sector risks?

[azlankamalludin]

Dear Sir,
I am a novice investor.. One quick question..
For EPS (Trailing).. if in one of the quarter the EPS number was negative, how do you suggest I tabulate it...(ignore, average, add ??) THanks Sir

[yatingsun]

Hi Professor, may I ask how we can calculate historical P/E ratio? Should we use the average stock price in previous years or current stock price? Do you have any suggestion?

[vikatambaeva]

Where can I find data for the regression analysis in the end of the video?

[otomackena]

Legend has it that some people are still searching for Hanson Natural

[josephlombardo]

Not sure how to take it...even if revenue and margin end up at the higher end of the distribution, wouldn't the return be mediocre at current price?

[baktashjami]

Can you kindly answer who are your targeting audience for this video?

[baktashjami]

Where can someone get your sessions for beginners learning equity analysis and valuation? ABC of equity analysis and valuation

[lseul]

Education is on point with this man…. But some of these outfits really make me question him