Investor Glossary-earnings multipleInvestor Glossary-earnings multipleInvestor Glossary-earnings multipleInvestor Glossary-earnings multipleInsightful stock market charts - Click here
investor
Categories    # 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

Earnings Multiple

The HTML to link to this page
 

The earnings multiple of a stock, also called the price/earnings (P/E) ratio, is the share price divided by the earnings per share. The earnings multiple is often based on the prior twelve months of earnings data. However, the earnings multiple can also be based on the estimated future earnings. A $40 stock with $2 in annual earnings, for example, has an earnings multiple of 20. Unprofitable companies have no earnings or negative earnings cannot be valued based on an earnings multiple.

The higher the earnings multiple, the more investors are willing to pay for future growth. Using the earnings multiple and estimates of future earnings, investors can project a future value for a stock.

When large numbers of stocks see their earnings multiples decline, the market is said to be undergoing multiple compression. Conversely, when the average earnings multiple increases, the market is undergoing multiple expansion. Changes in the earnings multiple of an individual stock are often evaluated in the context of earnings multiples of the general market.



Rate this earnings multiple definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: irrevocable trust, minority interest, Zero Cost Collar, 144a, open position, EBITDA, 1035 exchange, annual return, FICO score, phantom income, in escrow, diluted share, deferred revenue, real GDP, deferred tax, current ratio, FTSE, 1031 exchange, dividends payable, margin rate, stock market close, limit order, VIX, retained earnings, per diem, debt service coverage, class C shares, stock split, average price per share, ex-dividend, command economy, ex-dividend date, reverse mortgage, liquidity ratio, option premium, risk management, quality assurance, 401a, required rate of return, cancelled check, implied volatility, covered put, LIBOR, Key Rate Duration, labor relations, wholly-owned subsidiary, APR, balance sheet, inflation


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use