why different sectors acceptable P/E ratios are different...

ipoguru

ipoguru

Senior Manager - Equity Analytics

Posts : 341
Equity Stars : 5327
Reputation : 25
Join date : 2011-03-02

This may be very basic questions ..... but I may not be the only one don't know....
Its money at the end ultimately then why in some sectors higher P/E ratios are acceptable than in other sectors...
Is it because of high growth potential in future .....
and the different risk levels involved in the business....
Experts please advice..

Antonym

Antonym

Vice President - Equity Analytics

Posts : 1090
Equity Stars : 7460
Reputation : 275
Join date : 2011-02-09

I am no expert, but...

Higher PE ratios are acceptable in sectors where the likelihood of much higher earnings and/or potential for profit growth is higher.

Higher PE ratios sometimes tend to indicate a riskier industry sector - with returns that are more than commensurate; lower PE ratios signal a sector that is past its growth phase, now delivering lackluster returns.

The average PE ratio in the technology sector, for example, is much higher than the average PE in the utilities sector because the potential for breakthrough innovations is higher in the former.

Go through the attached link. It might help...
http://www.pe-ratio.com/

xhora

xhora

Senior Manager - Equity Analytics

Posts : 498
Equity Stars : 5412
Reputation : 70
Join date : 2011-04-24
Age : 35
Location : Colombo

Antonym has posted a answer while i'm typing mine Very Happy

I'm no expert but PE ratio quantifies the investor expectation towards a certain Business or sector. It says how much a investor is willing to pay for every Rs.1 generated from that business.

As you have correctly observed growth rate and risk levels are the main things to look at when deciding a decent PER. But we have to always mind about drawbacks of PER analysis also

* E (Earnings) is a historical figure while P (Price) is current value.
* E doesn't cover a entities amount of debt. So have to be careful when interpreting a high geared company.
* Assumption of a continues growth.

Because of this investment decisions should never be taken after ONLY considering the PE ratio. If a company's PE is undervalued than it's sector there might be a genuine reason for it.

From the following link you can view the current sector PE's in CSE
http://www.cse.lk/sectors/sectorSummary.htm

Finally I have found this from SmartMoney's Signature line

Market is not driven by P/E's or the EPS's .... It's the FEAR & GREED of the investors which drives the market.

Chabbi

Chabbi

Senior Manager - Equity Analytics

Posts : 371
Equity Stars : 5450
Reputation : 32
Join date : 2011-01-28
Age : 35
Location : Between HELL & HEAVEN :D

Still im bit confuse in calculating these thngs Sad

but this made me so confuse i juss click on Xhora links and i found this results for IT companies

IT

269.22

31,746,518.00

5,808,224

493

2,565.90

68.50

0.00

2

Finally IT PER is 2,565.90 ??? ### @@@@

only 2 companies are listed .. ECL & PCH Smile

so how to calculate on this ??

Sponsored content

Name*:
Phone number:
Email address*:
Comments*:
* - required fields	Learn

Name*:
Phone number:
Email address*:
Comments*:
* - required fields	Learn

Latest topics

why different sectors acceptable P/E ratios are different...

1 why different sectors acceptable P/E ratios are different... Tue May 10, 2011 9:58 pm

ipoguru

2 Re: why different sectors acceptable P/E ratios are different... Tue May 10, 2011 10:22 pm

Antonym

3 Re: why different sectors acceptable P/E ratios are different... Tue May 10, 2011 10:29 pm

xhora

4 Re: why different sectors acceptable P/E ratios are different... Wed May 11, 2011 12:18 am

Chabbi

5 Re: why different sectors acceptable P/E ratios are different...

Sponsored content

New topics