The Bull

Saturday 20

October, 2018 1:24 PM



DICTIONARY : A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Market valuation ratios

What does it mean?
Market valuation ratios are the favored analytical tool of many investors because they use a real value that cannot be manipulated – the market price per share.  All these ratios use the price market participants are willing to pay compared to other company indicators – earnings per share, expected growth, book value, and total sales..

TheBull says...
To give you a working example, ere are the numbers for two stocks in the biotech sector (as at 29th May 2011):
 SRX
CSL
Sector
Price to Earnings (P/E)
25.31
19.2
14.8
Price to Earnings Growth (PEG)
10
2.06
10
Price to Book (P/B)
5.65
4.42
2.03
Price to Sales (P/S)
4.51
2.24
8.57

 

The P/E ratio for SRX tells us the market sees this company as a growth share.  While value-oriented investors would say it is overpriced, the fact is, there are sufficient market participants willing to pay more for these shares.  Their Price to Book is also higher than the sector average, again indicating the willingness of market participants to pay a higher price for the shares than its raw fundamentals might warrant.

Although the PEG ratio for SRX is quite high, it is right in line with the sector average.  High PEGs are indicators of a potentially overvalued share.  

The numbers here tell a clear story.  The market is expecting high growth from Sirtex Medical and is willing to pay a premium price for the privilege of going along for the upward ride.

.

Live prices, powered by IG
Powered by

PLEASE SUPPORT OUR SPONSORS, AUSTRALIA'S LEADING BROKERS:



© Copyright TheBull.com.au. All rights reserved.