4G·

KGV explained in 30 seconds

The price/earnings ratio (P/E ratio) shows how expensive a share is in relation to its earnings.

Formula: Share price / earnings per share

Example:

Share price €100, earnings per share = €5 → P/E ratio = 20

A high P/E ratio can indicate growth - or overvaluation.

A low P/E ratio looks favorable - but can also be a warning signal.

Conclusion: P/E ratio is a useful tool, but not an oracle. Always look at it in context!

How important is the P/E ratio for your investments?

$AAPL (-6,05%)
$NVDA (-6,08%)
$TSLA (-3,16%)
$MSFT (-1,9%)
$NOVO B (-2,15%)
$AMZN (-5,99%)
$GOOGL (-3,25%)
$RHM (+2,93%)
$NKE (-10,22%)
$ASML (-7,24%)
$AMD (-7,85%)

39 Commenti

Charmin@Charmin

It is also helpful to look at the P/E ratio of similar companies (same sector) for comparison. For example:

Tesla has a P/E ratio of around 100, while most other major car manufacturers are between 5 and 10.

What does that tell us?

Tesla disciples talk themselves into it with: "Tesla is not an automotive company, but a tech company - so such a P/E ratio is completely normal."

Investors, on the other hand, at least consider the possibility of an overvaluation and take a closer look before investing.

•

Rendite Rudin@RenditeRudin

@Charmin Great input thanks!

••

Ph1l1pp@Ph1l1pp

@Charmin unsuitable example

•

The W.@thewolfofallstreetz

@Charmin So you wouldn't have bought Amazon in the 2010s because the P/S ratio was high? Relative P/S is more meaningful for growth companies; looking at the P/E ratio in isolation often leads to incorrect conclusions.

••

Charmin@Charmin

@thewolfofallstreetz Amazon was a GROWTH stock back then, that is something completely different. With successful growth stocks that make more profit and more sales every year, it is completely normal for the P/E ratio to go crazy.

But Tesla is not making more profit, but less and less. And the profit as such is negligible compared to other car manufacturers.

In this respect, Tesla's valuation above 100 rightly sets off alarm bells.

•

The W.@thewolfofallstreetz

Don't be angry with me, but some of your statements are very general and fall short. Are you really interested in a purely substantive discussion about the company? Leave the Elon issue / cult aside and take an objective look at the business model (vertical integration, integrated ecosystem of hardware and software, over-the-air updates, direct sales without middlemen, localized supply chain, own charging infrastructure, Net Promoter Score = 97, etc.), the company's development and pipeline. In addition: 1) Comparing Tesla's P/E ratio with other major car manufacturers and deriving your investment thesis from this shows intellectual laziness or a lack of curiosity. Which other classic OEMs fulfill the above points? Who has a comparable R&D efficiency? Who has a similar product pipeline? Who has 36 billion cash in the bank (despite a high reinvestment rate)? 2) Classic automotive production is cyclical and heavily dependent on interest rates, it is not a SaaS business with recurring and predictable sales from quarter to quarter. 3) Even the best growth stocks go through phases of "stagnation" before accelerated developments occur, especially when it comes to major technological leaps. What about Nvidia in 2007-13, 2018-19 and 2021-22? What about Amazon / Meta / Netflix in 2022? There are so many examples... 4) Have you looked at the price points at which the previous Tesla models are sold compared to your benchmarks from the sector? 5) Despite stagnating growth and negative external influences for Tesla (interest rates, political polarization), Tesla still generates 15 billion in operating cash flow - more than twice as much as Netflix, which is valued at around 400 billion. Also more than Mastercard, Costco and Co. So should Tesla really only have 1/10 or 1/20 of today's market capitalization? 6) I understand if you don't invest Tesla - there is a lot of future and optimus priced in and they are still not "cheap" for a no-brainer buy. There are many other good investment opportunities. But why do you always drift off on a personal tangent instead of making reasoned arguments?

••

Charmin@Charmin

@thewolfofallstreetz

First of all: I didn't mention Elon with *one* syllable in the comment above. Not a single one. From that you can already see what bias you are presenting here.

I don't participate in Elon-bashing because of his politics, because his political orientation - if anything - is even closer to me than that of the far-left. But, as I've said a few times in the forum, I couldn't care less about Musk's politics.

I only look at facts and figures. And in my opinion, these stand in stark contrast to a valuation with a P/E ratio >100.

You are welcome to see it differently.

But what I can no longer hear, because it's simply not true, is that Tesla is a special case, not a car manufacturer at all, but a software company, tech company or whatever.

That is complete nonsense. Other manufacturers have long since closed the gap to Tesla, or have overtaken Tesla. In my opinion, Tesla lost its lead years ago.

I don't see any competitive advantage - if one is gracious, then perhaps the "direct sales", which other manufacturers also do.

I don't think Elon Musk is suitable as CEO - that's not bashing, it's my opinion. He is not focused on Tesla, his hubris is bad for business, his empty promises once worked, but the critics are - quite rightly - getting louder and louder.

•

The W.@thewolfofallstreetz

@Charmin @Charmin You were talking about Tesla disciples who can't read a P/E ratio, or am I seeing it wrong? Regarding Tesla: 1) How do you define "gap to Tesla" or how do you measure it? Which OEMs have closed it or which OEMs have already overtaken Tesla? 2) How high do you value Tesla based on the current delivery figures (100 P/E ratio seems too high to you)? How high do you value the following: 50% growth expectation for Energy, launch of the Robotaxi network from June in Texas, 5k pilot production of Optimus in 2025, pilot production of the Semi in 2025? All with €0 value today? 3) You talk about alarm bells when it comes to valuation: i.e. as an investor, do you always sell a share as soon as it is no longer fairly valued? Or how do you deal with an overvalued share in your portfolio?

••

Charmin@Charmin

I was talking about Tesla disciples, right. However, contrary to what you claimed at the beginning of your last comment, I didn't mention Musk at all.

"Launch of the Robotaxi network from June in Texas, 5k pilot production of Optimus in 2025, pilot production of the Semi in 2025?"

Sorry, I'm out of here if you still believe all that crap after years of lies. NONE of this will happen. The robotaxi might drive a test lap somewhere in Texas - it will NEVER be commercially approved in the next few years. Completely out of the question. Optimus can't do anything. What is to be produced? A robot that can walk particularly slowly and sort paint balls in a box? Semi was supposed to go into series production YEARS ago and you believe in a pilot production in 2025?

Your examples are all just suitable for accelerating Tesla's downhill slide, because none of the announcements will become reality.

Tesla is about 10 times overvalued, probably more. Of course I would throw such a stock out of my portfolio, no question about it. Because then I would have made a tenbagger.

••

The W.@thewolfofallstreetz

@Charmin I currently see no reason not to believe in it, especially as factory construction is making rapid progress. But I agree with you that the Semi will not be a major sales driver. In perspective, I assume <10 billion, i.e. <10% of current sales.

••

Charmin@Charmin

@thewolfofallstreetz The semi-story isn't decisive here either, but Robotaxi and Optimus. These are smoke and mirrors - a lot of smoke for nothing. It is Musk's attempt to follow the old pattern: to lure investors with outlandish announcements. You can't really blame him, because this strategy has worked for years. But I think that's probably over now and people are no longer listening to blah blah blah, but looking at the figures.

•

Visualizza tutti 17 ulteriori risposte

Tenbagger2024@Tenbagger2024

Thank you dear.
I think the P/E ratio alone says very little. That's why it should always be considered in context.
Such as with the average of the last 5-10 years.
You should also look at the forward P/E ratio, which should ideally fall.
Another key figure would be the PEG, which should ideally be below 1.
For companies that are not yet profitable, it is worth looking at the P/E ratio.
The P/E ratio is often very high for companies that have just become profitable and are experiencing high growth. However, this should not be overestimated.
Quality companies are often valued somewhat higher in terms of their P/E ratio.

•

Rendite Rudin@RenditeRudin

@Tenbagger2024 I agree, I just wanted to explain the P/E ratio very simply for the new stock market participants :) Thanks for your valuable Input👍🏼

•

Tenbagger2024@Tenbagger2024

@RenditeRudin
My dear, you have done well.

•

SemiGrowth@SemiGrowth

It is also important to look at the forward P/E ratio. This is because, as we all know, the future is traded on the stock market.
Comparisons with peers or historical P/E ratios are useful here.
Growth should also be taken into account (PEGe) and the sustainability of growth should also be assessed.
While $MU is quoted at a PEGe < 15 with growth rates of 60%, ASML (no idea why I can't link this) is quoted at a PEGe of 26 with growth rates of 20%.
Yes, the two stocks are not exactly in the same industry, but that's enough for the example. $MU is not necessarily cheap as it is much more cyclical and has less "quality". So here it is important to consider the long-term growth prospects and the business model

•

Lukas@mastermindLukas

in what context to other evaluation criteria could it be considered? Thanks for the great post!

•

Rendite Rudin@RenditeRudin

@mastermindLukas There could be a few to consider: P/B ratio, KUV, EBITDA... etc :)

•

Jan K.@user250b43bdb9764a62

@mastermindLukas to add .... industry (not every industry has relevant EPS or P/E as suitable metric), peers, revenue trends, one-time vs recurring write-offs / risks (e.g. exposure to significant legal risks or write-downs of assets), price/FCF, P/S ratio, market forces, regulatory environment and risks, exposure to certain geographic regions / markets as potential risk, pricing power, dividend coverage and yield.

Personally, I hardly look at P/E. I glance at it but don't really care much about it in particular.

•

Jonathan@ProTox

But what does profit per share mean? Who makes what profit with the share

•

Rendite Rudin@RenditeRudin

@ProTox A P/E ratio of 10 means: You pay €10 to "buy" €1 of profit.

•

SemiGrowth@SemiGrowth

@ProTox Earnings per share means dividing the company's profit (net income) for a year by the company's market capitalization (market capitalization).
Earnings per share (EPS) describes how much of the company's profit is attributable to a single share.

Company makes €100 (per year) profit has placed 10 shares at €5.
Enterprise value = €50
EPS = 10€ (100€ profit on 10 shares)
KGV = 5 (50/10)

•

Jonathan@ProTox

@SemiGrowth okay thanks for the detailed explanation

••