Lets talk about P/E ratios! Every public company has a P/E ratio. It is the current market value per share of the company divided by the expected future earnings of that company. Many investors use this ratio as a method of determining the relative value of a stock because it tells that investor how much you are paying for each $ of future earnings. For example, Coca-Cola with a P/E ratio of 20 tells you that you are paying $ 20 a share for every $1 of future earnings; conversely Amazon with a P/E ratio of 115 tells you that you are paying $ 115 a share for every $1 of future earnings. A P/E ratio can be low or high and it is your job to determine why. 1) a P/E can be low because investors are losing confidence in the company and they are selling shares even though the earnings stay the same 2) or a P/E can be low because earnings are growing quickly and the current market price hasnt picked up on this earnings growth yet. 3) or a P/E can be high because investors become excited about a company (such as Tesla) and investors will buy the shares now in the hopes that the earnings will eventually increase 4) or a P/E can be high because earnings are actually falling and investors havent picked up on this yet investors are holding out in the hopes that earnings will recover. Additionally, a P/E ratio should be analyzed in relation to the companys industry, competition, product line , its debt and its position in the economy. Thus, I would like you to report on the P/E ration for your two companies. How has the P/E ratio changed (up or down) and why? What is driving the trend in the movement of your P/E ratio? How does the P/E from your two companies compare to other companies in the same industry. There is no one answer here it is your analysis from what you see in the company. Can you provide a summary of at least 20 sentences and I hope you enjoy this exercise.
