The PE ratio is among the oldest and most used ratios in finance. Its importance is crucial in the dividend discount model, which states that the current price is the sum of all the discounted future cash flows. In its simplest form:
P = D/(r-g)
With P today stock price, r discount rate and g constant dividend growth.
Because not many companies pay a substantial dividend and dividends cannot be sustainably higher than earnings, the latter is often used as a proxy for dividends.
A relatively low PE ratio shows what the market is discounting poor future earnings growth, while a high PE means that the market is discounting high future earnings growth.
Because this factor is heavily influenced by the company's leverage, operational risk and profitability, it is best suited to compare stocks of the same industry.
Formula
Price / EPSInclXor
If negative returns NA
Availability
These ratios combine data from from line item filings and factors that use prices (click here for the line-item reference). Which price is used in the calculation depends on the period. The latest close price is used for ratios that involve the latest financials, like the most recent quarter or the latest trailing twelve fiscal months (TTM). For ratios that involve older financials, like the quarter one year ago, or the TTM one year ago, the price used for the calculation is the average price during the following quarter.
Quarterly values from Income & Cashflow statements are annualized to make the resulting factor more readily comparable with 12-month factors. The annualization is done by multiplying the quarterly figures by approximately 4 (depends on the actual number of days in the period).
You can either use a prebuilt ratio or use the function to define your own.
Function
RatioName(offset,type)
offset: 0-25 (for interim) 0-10 (for annual)
type: QTR (for interim), ANN (for annual), TTM (for trailing twelve months)
For example to screen for stocks whose P/E today is less than their P/E from their previous fiscal 4 quarters enter:
PEExclXor(0,TTM) < PEExclXor(4,TTM)
The above can also be done using prebuilt ratios:
PEExclXorTTM < PEExclXorPTM
Prebuilt Ratios
Prebuilt ratios are available for these periods:
| Period | Description | Price | Line Item |
|---|---|---|---|
| Q | Recent Quarter | Close(0) | (0, QTR) |
| PQ | Prior Quarter | Avg nextQ | (1, QTR) |
| PYQ | Prior Year Quarter | Avg nextQ | (4, QTR) |
| TTM | Trailing Twelve Months | Close(0) | (0, TTM) |
| PTM | Prior TTM | Avg nextQ | (4, TTM) ** |
| A | Recent Annual | Avg nextQ | (0, ANN) |
| PY | Prior Year | Avg nextQ | (1, ANN) |
** PTM offset is 4 , not 1, since it uses interim periods