What is PE Ratio? [and Why it SUCKS!]

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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.

Let’s Talk Money! with Joseph Hogue, CFA

  • HardWorker ForMyMoney
    Posted at 14:47h, 01 November

    Bowtie nation 😂😅👍

  • Let's Talk Money! with Joseph Hogue, CFA
    Posted at 14:47h, 01 November

    Investor must-watch! How the pros pick stocks in this 10-step process 💰 …https://youtu.be/jBWlK1rrydQ

  • Passive Income Tom
    Posted at 15:08h, 01 November

    Thanks for going over this as well as the comparison of stocks especially in similar fields. 👍

  • GenExDividendInvestor
    Posted at 15:08h, 01 November

    I think it’s like any metric. In isolation it’s not great, but used in context while also using other financial metrics gives it some use. Valuing companies is an art and a science, and PE’s are one helpful ingredient that shouldn’t be overly used.

  • Greg Kamei
    Posted at 15:22h, 01 November

    Thanks for sharing the limitations of PER and suggesting alternatives. Numbers by themselves are so "easy" to use, but without context are usually meaningless (i.e., can be made to "mean" anything). Nice reminder that homework for investing should be both qualitative and quantitative. BTW, which statistics have been defined by recognized organizations. I believe FFO has been defined by NAREIT, but AFFO depends on the company. Are there others?

  • Gold Rush
    Posted at 16:07h, 01 November

    Hey, I'm new here just subbed learning a lot thank you.

  • Bud Tugly
    Posted at 20:27h, 01 November

    Phony info is also given in the quarterly earnings report. Robinhood lets me listen into the earnings call live and after 15 to 30 minutes of introductions and back slapping then they get down to the propaganda saying how bright the future looks and then

  • Investing Book Summaries
    Posted at 21:53h, 01 November

    I like looking at levered free cash flow myself.

  • charcoaljohnson
    Posted at 22:56h, 01 November

    Excellent video, I never knew what these accounting terms meant.

  • DSWH
    Posted at 23:26h, 01 November

    SO True.

  • Jared Love
    Posted at 06:20h, 02 November

    Bow tie nation,I love it!!!!! Thanks for the great video Joseph

  • Denis Barengolts
    Posted at 16:36h, 02 November

    Amazing video. Thank you very much.

  • Des Dividend
    Posted at 22:33h, 02 November

    man thank you for helping the world.

  • Jlor mart
    Posted at 22:54h, 02 November

    Great explanation thanks a lot, Joseph the bowtie man!!

  • Fiskenburg 007
    Posted at 12:17h, 04 November

    When I see P/E ratio of stock AFIN and its at -850, I’m like how are they still in business?