Tuesday, July 06, 2010

The Multiple or P/E Ratio

This was from a November 23rd 2009 Salve Lucrum Post

Just a little review for anyone who wants it or needs it. The Multiple, (“PE ratio” is the true gauge if a stock is expensive or cheap) is determined by taking the current stock price and dividing it by the current years earnings per share estimate. For this example AMT is selling for 40.80 a share and current estimated year end earnings per share is .62. That makes their multiple or PE ratio 65.80. This is expensive when compared to other players in that sector. When you do that, it is hard to find a clean play in the tower segment that is showing a profit. (You need to have profit to have profit per share and have a denominator for your multiple). If you do find another semi clean play for towers like CBB, SVR, you will see smaller multiples in the 15-17 range. If you want a gauge of how AMT compares to a broader market look at the PE of the S & P 500. In March it was about 13.8 and now it is flirting with 20. That still makes AMT look expensive. And it is.


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