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Chicago, IL – April 23, 2021 – Zacks Value Investor is a podcast hosted weekly by Zacks Market Strategist Tracey Ryniec. Each week, Tracey will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and their impact on your life. To listen to the podcast, click here:
Warning: do you know your P / E ratio?
Welcome to Episode 233 of the Value Investor podcast.
Each week, Tracey Ryniec, editor of the Zacks Value Investor portfolio, shares some of her top investing tips and stock picks.
Many value investors look for cheap stocks using a price / earnings ratio, also known as the P / E ratio.
But do you know which P / E ratio you are looking at?
P / E rear and front
If you’ve looked at the P / E report for a toy company Funko FNKO on YahooFinance, you would see it’s 180x.
Shares are up more than 90% since the start of the year.
It does seem like this stock is expensive, right?
But YahooFinance uses the final P / E ratio on its summary page, which looks at last year’s earnings.
Other financial sites, like Zacks.com, use the forecast P / E, which examines analysts’ estimates of 2021 earnings.
Funko’s P / E forward is only 23.
It’s a big difference if you’re trying to decide if the stock is “expensive” by looking at the P / E ratio.
Look at the results this year
With many companies recording depressed profits in 2020 due to the COVID pandemic, P / E ratios will be less reliable, depending on which ones you are looking at.
1. Lennar LEN has a forward P / E of 9.5, which is similar to its P / E ratio of 10.4. Stocks are up sharply but the forward P / E is lower as earnings are expected to rise around 40% this year.
2. You’re here TSLA appears to be extremely expensive, with a P / E ratio of 1132. But earnings are expected to grow 90% year-over-year, and stocks only rose 2% in 2021, which puts the P / E anticipated to only 167.
3. Wayfair W was a pandemic winner in 2020 and profits have skyrocketed. But profits are expected to drop 53% in 2021. Wayfair’s final P / E is 169, but the forward picture is cheaper, at 138x.
4. G-III clothing The GIII was really hit in 2020 with a significant drop in profits. On YahooFinance, it has a P / E ratio of 65, which makes it expensive. But with profits set to rise 223% in 2021 as buyers buy more dresses and jeans, he has a forward P / E on Zacks of just 13. It’s really cheap.
What else do you need to know about the P / E ratio and find “value” stocks?
Tune in to this week’s podcast to find out.
[In full disclosure, Tracey owns shares of FNKO in her personal portfolio.]
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