Price Earnings Ratio
Price/Earnings Ratio Model (P/E)
The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis. A valuation ratio of a company's current share price compared to its per-share earnings. For example, if a company is currently trading at $60 a share and earnings over the last 12 months were $2 per share, the P/E ratio for the stock would be 30 ($60/$2). The earnings multiplier can be computed as follows:
P/E Ratio = Current Market Price of Shares / Expected 12-months Earnings per share
However, the infinite period dividend discount model (DDM) can be used to indicate the variables that should determine the value of the P/E ratio as follows:
Po=Do1+gre-g=D1re-g
If we divide both sides of the equation (earning per share), the result is:
PoEPSo=DoEPSo1+gke-g
Thus earnings multiplier can be ultimately simplified as:
PoEPSo=PayoutRatio1+gke-g
This model implies that P/E ratio is determined by: * The expected dividend payout ratio (dividends divided by earnings) * The estimated required rate of return on the stock (k ) * The expected growth rate of dividends for the stock (g)
Given the above formulas and information, we can now calculate the P/E ratio for Vingroup:
Table 1: P/E Ratio forecast | Current (9 mounths 2012) | 2013 | Growth rate | | 0.08 | Net Earning after tax | VND 1,352,077,007,504.00 | | Weight Average of Ordinary Shares | 645,358,358.00 | | EPS0 | VND 2,095.08 | VND 2,262.69 | P0 (14/12/2012) | VND 76,000.00 | | P/E | 36.27547465 | | | | | PE Price | VND 82,080.00 | |
Our computed P/E ratio of 36.275 suggests that investors are willing to give up 36.275VND for every 1VND of earnings that the company generates. In evaluating Vingroup’s P/E ratio to determine whether it is over / underpriced, we will compare the P / E ratio of Vingroup with the others in the same industry, if the P / E ratio of a company is higher than
The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis. A valuation ratio of a company's current share price compared to its per-share earnings. For example, if a company is currently trading at $60 a share and earnings over the last 12 months were $2 per share, the P/E ratio for the stock would be 30 ($60/$2). The earnings multiplier can be computed as follows:
P/E Ratio = Current Market Price of Shares / Expected 12-months Earnings per share
However, the infinite period dividend discount model (DDM) can be used to indicate the variables that should determine the value of the P/E ratio as follows:
Po=Do1+gre-g=D1re-g
If we divide both sides of the equation (earning per share), the result is:
PoEPSo=DoEPSo1+gke-g
Thus earnings multiplier can be ultimately simplified as:
PoEPSo=PayoutRatio1+gke-g
This model implies that P/E ratio is determined by: * The expected dividend payout ratio (dividends divided by earnings) * The estimated required rate of return on the stock (k ) * The expected growth rate of dividends for the stock (g)
Given the above formulas and information, we can now calculate the P/E ratio for Vingroup:
Table 1: P/E Ratio forecast | Current (9 mounths 2012) | 2013 | Growth rate | | 0.08 | Net Earning after tax | VND 1,352,077,007,504.00 | | Weight Average of Ordinary Shares | 645,358,358.00 | | EPS0 | VND 2,095.08 | VND 2,262.69 | P0 (14/12/2012) | VND 76,000.00 | | P/E | 36.27547465 | | | | | PE Price | VND 82,080.00 | |
Our computed P/E ratio of 36.275 suggests that investors are willing to give up 36.275VND for every 1VND of earnings that the company generates. In evaluating Vingroup’s P/E ratio to determine whether it is over / underpriced, we will compare the P / E ratio of Vingroup with the others in the same industry, if the P / E ratio of a company is higher than