Be sure to grab the replays and the workbook for the challenge –> HERE

If you missed some of the challenge and would like to review previous days, you can view the previous days –-> here.

This training/challenge is for educational and informational purposes only.  These materials do not constitute a recommendation to engage in any particular securities transactions.

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Week 2: Make it Slay – Stock Trading

This week it’s time for some action as a new investor.  You’ll learn by doing when it comes to purchasing stocks and navigating the stock market to help you build a foundation for investing for years to come.  No need to fear – We got you!

Price/Earnings Ratio

It is a profitability ratio that tells the amount that an investor is willing to pay for a company’s stock relative to the company’s earnings.  The Price/Earnings Ratio, or P/E Ratio, is a quick and easy way to determine how cheap or how expensive a stock may be.  Generally, the higher the P/E Ratio, the more some investors may be willing to pay to get one dollar of a company’s earnings.  For instance, if you see a company’s P/E Ratio is at 17, then that tells you that investors are willing to pay $17 just to get $1 of that company’s earnings.  A high P/E Ratio means that the market expects the company to grow its profit at a rapid pace in the future.  On the other hand, if the company has a lower P/E Ratio, then a slower growth rate is expected, the company may be undervalued or it has reached a mature phase.  The P/E Ratio is calculated as follows:

Current Price of a Stock/Company’s Earnings Per Share

The good news is that you will not be asked to calculate this ratio, because most apps and websites have already done it for you.  However, you will need to be able to locate the number and understand what it means to you, as an investor.

Day 9 – Price/Earnings Ratio

There are several different ways to analyze a company, financially.  But, for the purposes of this challenge we will focus on one of the most popular ways to value and measure a company – the P/E Ratio.  The P/E Ratio is a profitability ratio and is good to use to compare companies that are in the same industry.  Some industries such as technology, tend to have very high P/E Ratios.  Whereas, industries such as utility companies tend to have much lower P/E Ratios.  It is important to compare apples-to-apples when you are trying to decide between two companies, whether or not to purchase either company’s stock.   It makes more sense to compare Nike to UnderAmour, but it doesn’t make sense to compare Nike to Nordstrom’s.  Nike and UnderArmour are specialty, athletic apparel companies and Nordstrom’s is a department store.

Buyer Beware

No single ratio can tell you the entire financial story of a company.  Therefore, there are a few things to keep in mind when reviewing the P/E Ratio:

• The average market P/E Ratio is 20-25.  The S&P 500 is currently 20.01.
• Companies that have no earnings or are losing money will not have a P/E Ratio, as indicated by “N/A”
• Companies can manipulate their earnings, which can effect the outcome of the P/E Ratio

Understandably, for these reasons, the P/E Ratio is one of several different metrics that investors use to evaluate a stock.

Watch the video —> Here

Today’s Investing Activity:  Today’s activity focuses on taking a closer look at one of the valuation metrics that can help you determine whether or not a stock is a good buy – The P/E Ratio.  The stock price should not be the only number you use to decide if a stock is a worthy purchase.

Compare the P/E Ratios for Walmart (WMT) & Target (TGT).  Select one of the stocks on your watch list to review the P/E Ratio and the P/E Ratio of a competitor.  Use your app to locate Stock Prices and P/E Ratios for today’s activity.

You can use my “Price Earnings Worksheet“ to help you with today’s activity. Feel free to take a screen shot of your worksheet and share with the group or leave a comment below.

STEP ONE:

Review the P/E Ratio example
Complete the P/E Ratio information for Walmart & Target

STEP TWO:

Select a stock from your watch list and a competitor of that company.

Complete the P/E Ratio information for both companies.

STEP THREE:

Share a screenshot of your worksheet in The Stocks & Stilettos Society or let us know your results in the comments below.

Bonus Activity: What do the following acronyms stand for?

EPS / ROI / ROA / PEG / DD

Tomorrow: Day 10 – Stock Selection Strategies

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Happy Investing!

Cassandra