If we were to look up the P/E ratio of Tesla ( NASDAQ: TSLA), we would want to see how it compares to its peers. Industry PE ratios are the average (mean) P/E ratio of all the companies that operate within a certain industry.įor example, the industry P/E for US auto manufacturers would include the average P/E ratio of Ford (NYSE:F), General Motors ( NYSE:GM) and Toyota ( NYSE:TM), among many others. You can try heading over to WallStreetZen and searching for stock you’re interested in to see how its P/E ratio compares with the industry / market. market from a P/E perspective, but good value relative to the US Restaurant industry. In the example above, we can see that Mcdonald’s is poor value relative to the U.S. What’s unique here is that WallStreetZen also runs automated due checks that compare McDonald’s P/E ratio with the US market average and the US Restaurant industry average, and gives you the results in simple, one-line explanations. This chart from WallStreetZen shows us Mcdonald’s P/E ratio over time, compared to two important benchmarks – the US market P/E ratio average, and the US restaurant industry P/E ratio average. In this example from McDonalds ( NYSE: MCD), we can see how comparing PE ratio with benchmarks helps us determine whether a PE ratio is relatively good or bad. Unlike most stock research websites that just show you P/E ratio as a single number, WallStreetzen shows you the average market P/E ratio, as well as the P/E ratio of the company you’re researching. That’s a question that can be answered by comparing a company’s P/E ratio to its industry or historical pe ratios.Ī stock market index, such as the S&P 500, can be used to gauge whether the company is over- or undervalued relative to the market.Ī P/E ratio can also be benchmarked relative to the industry average P/E, such as comparing McDonald’s to the average P/E ratios of other fast food restaurants. What’s the expectations of the company relative to its major peers and competitors? That’s where the industry PE ratios come into play.
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P/E Ratios Are Only Useful Compared to a BenchmarkĪ P/E ratio of 10 might be pretty normal for a utility company, while it might be exceptionally low for a software business. However, the long answer is more nuanced than that.Ī high P/E ratio, whether compared to the industry average or its historical average, means you are paying more for each dollar of earnings, but it also implies that investors are expecting the company to grow earnings faster in the future, whether it be versus its competitors or its own past growth. The market average P/E ratio currently ranges from 20-25, so a higher PE above that could be considered bad, while a lower PE ratio could be considered better. So, what is a good PE ratio for a stock? A “good” P/E ratio isn’t necessarily a high ratio or a low ratio on its own. This makes a high PE ratio bad for investors, strictly from a price to earnings perspective.Ī higher P/E ratio means you are paying more to purchase a share of the company’s earnings. The higher the P/E ratio, the more you are paying for each dollar of earnings. If you were wondering “Is a high PE ratio good?”, the short answer is “no”. when comparing P/E ratios between similar companies operating within the same industry. But understanding what is a “good” P/E ratio for a stock requires additional context. The price-to-earnings ratio (P/E ratio) is a valuation metric used by investors to get an idea of whether a stock is over- or undervalued.
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