. Today, when I was reading money control on ITC,
“valuation at 16x F23e P/E are undemanding”
What does the above statement mean, is it forward earning estimation. Any idea how is this calculated. Is this info available for each and every company
Price to earning = Current market price of the stock / Current Earning per share.
For example, ITC’s -
Earning per share or EPS (March 2021) = 10.69
Stock price = 209
PE = 209/10.69
= 19.55
This means, for every 1 Rupee of real earning (in terms of profits), we are paying 19.55 times (expressed as 19.55x) for its share price.
If you expect the EPS to improve to 12, by March 2022, then the PE will change to -
= 209/12
= 17.4
Since we are considering '22’s estimated EPS, this is called forward earning and forward PE.
Btw, we have started a new module on Varsity called Financial Modelling, we will be discussing all these things and more. Do check this - Integrated Financial Modelling – Varsity by Zerodha
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