I’m looking at the stock of a Fortune 1000 US company.
It’s old, but losing money for the last quarter or so. It had been profitable prior to that for quite a while.
The P/E is freaking 90.
Dividend/Yield is around 0.3 and 3.6.
Does that mean the market is gambling on earnings to recover in the future, or is the market saying “it will survive, and we like dividends”.
Thanks in advance!
I’m no expert investor, but a P/E (“price to earnings”, btw) of 90 is high but not insanely so. Here’s a list of the stocks with the highest P/E’s, some of which go into the thousands.
At the risk of rephrasing the obvious, there are two very different ways to get High P/E – high price, or low earnings.(*) Note that if P/E grows for the latter reason, it can suddenly flip from being a large positive number to a large negative number!
Note that the P/E ratio you’ll see in the stock reports uses the current price and historical earnings. That makes sense, because statistically that’s all they’ve got.
Investors tend to make investments based on expected earnings, so if, say, a pharmaceutical company has just announced that they’ve developed a new drug the P/E ration of their stock could well soar.
It’s not at all uncommon. Any time a company stock actually trading has negative earnings, the PE ratio is more than infinity. There are lots of cases of this.