The price-to-earnings ratio, or P/E ratio, is one of the favorite metrics of JonesTrading’s O’Rourke. It is the price of the stock divided by earnings per share, gives investors a way to see what they’re paying for each $1 on a company’s bottom line, and to compare that cost over time and with a company’s peers.
To find it, click on the “profile” tab in a stock’s quote page.
For example, Google parent Alphabet Inc.’s stock /zigman2/quotes/202490156/lastsale GOOGL +0.92% /zigman2/quotes/205453964/composite GOOG +0.87% may at first glance appear to be a bit rich, given that it has advanced at triple the pace of an already booming S&P 500 through the first eight months of 2021.
In terms of P/E, Alphabet’s could make the stock appear expensive, since it was about 6 percentage points above the implied P/E ratio for the S&P 500.
But despite the big gain in the stock price, Alphabet’s P/E had declined by more than 2 percentage points since the end of 2020 as earnings have increased at a faster rate than price. Looking at it compared against other technology companies, it was several percentage points below Microsoft’s and a little more than half that of Amazon’s but a little above Apple’s P/E.
To chart the P/E, go to “advanced chart” and then within the “lower charts” pull-down menu, select “P/E Ratio.”
Price relative to sales is similar to the P/E ratio, but because it is based on the top line rather than earnings per share, the ratio can’t be influenced by a change in the number of shares outstanding from share repurchases.
“The higher you go up on the income statement, the harder it is [for a company] to mess around,” said Kingsview’s Nolte.
Return on invested capital
Return on invested capital (ROIC) is calculated by dividing net operating profit, after tax, by invested capital. It’s way to judge how well a company’s management allocates capital to generate a return. That can be found under the “profile” tab on a quote page.
For example, Apple’s ROIC was a few percentage points above the S&P 500’s performance over the past 12 months, and nearly triple that of the 10-year Treasury yield.
“One of the most important [metrics I look at] is return on invested capital,” National Securities’ Hogan said. “Anything more than 15% is spectacular.
Short interest as a percent of float
Short interest is the number of shares that have been bet by investors that the stock price will decline, while the percent of float is short interest divided by the number of shares publicly available for trade. That can be found under the “overview” tab.
Short interest is a good way to gauge overall investors sentiment in a stock. It is often used as a contrarian indicator; the more short interest there is, the more shares that will have to be purchased to cover those shorts if prices rise enough for bears to abandon their bets or fall enough for bears to take profits.
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So a stock with a high relative short interest ratio and that is trading close to its 52-week high may have more potential for gains than a stock with a low short interest ratio trading near its 52-week low.
There is also the potential of a “ short squeeze ,” for heavily shorted stocks, which include meme stocks AMC Entertainment Holdings Inc. /zigman2/quotes/200235402/composite AMC -1.28% and GameStop Corp. /zigman2/quotes/203755179/composite GME -0.43%
There is a lot more on stock quote pages that can be very helpful in sizing up a company:
Board of directors, under the “profile” tab, gives a quick view of people making decisions for the company.
Look at liquidity ratios, also under the “profile” tab. The current ratio is a measure of a company’s ability to pay short-term debt obligations; the quick ratio, also known as the acid-test ratio, provides a look at assets easily convertible to cash; and the cash ratio depicts a company’s ability to use available cash to pay off short-term debt.
Charts, under the “charts” tab, provide an easy way to gauge a stock’s performance over time. The charts allow investors to change the frequency and type of display, while adding many technical studies such as moving averages, relative strength, volume and news density.
The “financials” tab includes a look at the income statement and balance sheet over a five-year period. It also provides a list of a companies filings with the Securities and Exchange Commission.
A list of tradable stock option contracts can be found under the “options” tab, with all available maturities and strike prices, and prices for both bullish “call” options and bearish “put” options.
Employee data under the “profile” tab includes the number of employees, revenue per employee and income per employee.
Multiple valuation measures are under the “profile” tab, such as total debt to enterprise value, enterprise value to sales, price to Ebitda (earnings before interest, taxes, depreciation and amortization), price to book ratio and price to cash flow ratio.
The most recent insider transactions are under the “profile” tab.
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