Why does the Value Line price/earnings ratio often differ from that in The Wall Street Journal or brokerage reports?
All price/earnings ratios are calculated by dividing the recent stock price by 12 months of earnings. The different ratios occur because we each use different 12-months earnings figures. Newspapers use 12-months trailing (i.e., reported) earnings. Value Line uses a total of the past six months of trailing earnings and the next six months of estimated earnings. (In our view, this is the best method since it incorporates both recent history and a near-term forecast.) Your broker is likely to use a calendar year’s earnings. Just be sure that when you are comparing two companies’ P/E ratios, you are using the same methods.
Related Questions
- Why does Value Line sometimes show different share earnings than the company, Standard & Poors, The Wall Street Journal, or my broker?
- Why does the Value Line price/earnings ratio often differ from that in The Wall Street Journal or brokerage reports?
- What is the price/earnings ratio of the overall market?
