What is P/E Ratio? [and Why it SUCKS!]

Why is the PE ratio, the most popular investing term for investors, totally worthless? What is the price-earnings-ratio and why do professional investors laugh when they hear it?

I’ve worked as an equity analyst for a decade and can tell you, the biggest lie on Wall Street is the PE ratio. The pundits in the financial media love it but it is a horrible measure for picking stocks. Use it and LOSE money!

In this video, I’ll reveal three reasons why the PE ratio is a bad measure of a stock’s value. I’ll show you how to find the price-to-earnings ratio, if you still want to use it. I’ll also show you three other stock picking techniques that work better.

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I’ll start off defining the PE ratio and showing you how to calculate it. I’ll then reveal what the PE ratio means and show you what is a good PE ratio. Then I’m going to blow your mind by revealing what is tragically wrong with the price-to-earnings measure for stocks and three valuation tools to use instead.

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1:35 What is the PE Ratio?
2:05 How to Calculate PE Ratio
3:00 What does the price-to-earnings ratio mean?
5:05 What is a good PE ratio?
6:30 What is the average PE ratio?
10:40 What is the price-to-sales ratio?
12:10 What is the price-to-book ratio?
13:53 What is the price-to-cash flow ratio?

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.