70% of my portfolio is in index funds/ETFs, which is why my motto is DCA and chill 😎
But, contrary to most of FinTwit, I also like individual stocks. And I've had some big winners thanks to my ability to analyze company financials.
Let me teach you how to value a stock 👇
But, contrary to most of FinTwit, I also like individual stocks. And I've had some big winners thanks to my ability to analyze company financials.
Let me teach you how to value a stock 👇
There's tons of ways to value stocks, but let's start with these four important ratios:
1. Price to Earnings (P/E)
2. Price to Sales (P/S)
3. Price to Growth (PEG)
4. Debt to Equity (D/E)
I'll be using Apple $AAPL for my example
1. Price to Earnings (P/E)
2. Price to Sales (P/S)
3. Price to Growth (PEG)
4. Debt to Equity (D/E)
I'll be using Apple $AAPL for my example
1. Price to Earnings (P/E)
The P/E ratio tells you how much you are paying for each dollar of earnings.
To figure out the P/E of a stock, you divide the share price by the earnings per share (EPS).
A good P/E ratio is typically below 20.
The P/E ratio tells you how much you are paying for each dollar of earnings.
To figure out the P/E of a stock, you divide the share price by the earnings per share (EPS).
A good P/E ratio is typically below 20.
Let's figure out Apple's P/E ratio
$AAPL
Share price: 174.20
EPS TTM: $5.89
P/E = 174.20 / 5.89 = 29.6
$AAPL
Share price: 174.20
EPS TTM: $5.89
P/E = 174.20 / 5.89 = 29.6
2. Price to Sales (P/S)
The P/S ratio tells you how much you are paying for each dollar of sales.
To figure out the P/S of a stock, you divide the share price by the sales per share.
A good P/S ratio is typically between 1 and 2.
The P/S ratio tells you how much you are paying for each dollar of sales.
To figure out the P/S of a stock, you divide the share price by the sales per share.
A good P/S ratio is typically between 1 and 2.
Let's figure out Apple's P/S ratio
$AAPL
Share price: 174.20
Sales per share TTM: $23.94
P/S = 174.20 / 23.94 = 7.3
$AAPL
Share price: 174.20
Sales per share TTM: $23.94
P/S = 174.20 / 23.94 = 7.3
3. Price to Growth (PEG)
The PEG ratio tells you how much you are paying for each dollar of earnings, while also factoring in earnings growth.
To figure out the PEG of a stock, you divide the P/E by the earnings growth rate.
A good PEG ratio is typically below 1.
The PEG ratio tells you how much you are paying for each dollar of earnings, while also factoring in earnings growth.
To figure out the PEG of a stock, you divide the P/E by the earnings growth rate.
A good PEG ratio is typically below 1.
Let's figure out Apple's PEG ratio
$AAPL
P/E: 29.6
5 Year EPS Growth: 17.0%
PEG = 29.6 / 17.0 = 1.7
$AAPL
P/E: 29.6
5 Year EPS Growth: 17.0%
PEG = 29.6 / 17.0 = 1.7
4. Debt to Equity (D/E)
The D/E ratio tells you how well a company is leveraging its debt to generate profits for it shareholders.
To figure out the D/E of a stock, you divide the total liabilities by the shareholder equity.
A good D/E ratio is typically below 1.
The D/E ratio tells you how well a company is leveraging its debt to generate profits for it shareholders.
To figure out the D/E of a stock, you divide the total liabilities by the shareholder equity.
A good D/E ratio is typically below 1.
Let's figure out Apple's D/E ratio
$AAPL
Total Liabilities: $97.0B
Shareholder Equity: $62.2B
D/E = 97.0 / 62.2 = 1.56
$AAPL
Total Liabilities: $97.0B
Shareholder Equity: $62.2B
D/E = 97.0 / 62.2 = 1.56
Based on these four metrics, it can be said that Apple is slightly overvalued.
But as I mentioned earlier, there's tons of methods used to value stocks.
And I used all of them in my most recent stock analysis of $AAPL. I even share my price targets 😉
But as I mentioned earlier, there's tons of methods used to value stocks.
And I used all of them in my most recent stock analysis of $AAPL. I even share my price targets 😉
There you have it, everything you need to quickly value stocks using 4 of the most popular ratios.
What's your favorite ratio? Let me know!
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What's your favorite ratio? Let me know!
If you liked this thread, be sure to:
✅ Follow me
✅ Like and Retweet
✅ Subscribe to my FREE daily newsletter:
cmgventuregroup.com
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