Evaluation of P/E Ratio

The P/E ratio is the price-to-earnings ratio, and it measures the share price of a company
relative to the net income-earning of the company from each share. The ratio indicates the
current demand of the investors for the shares of a given company. When the P/E ratio is high,
there is an increase in the market as the investors will be expecting they are earning to grow in
the future. The rate does not tell a lot, but it makes more sense when it is compared with the P/E
ratio of other similar companies. In most instances, the comparison is with other companies that
are of the same size and the same country of operation. The P/E ratio can be viewed as the
duration that it will take a company to earn back the amount an investor pays for stock. For
instance, if a company earns a total of $2 per share each year and the trading price for the stock
is $30, then the P/E ratio for the company is 15. That implies that it will take the company a sum
of 15 years to earn back the $30 that the investor paid for the stock. The central assumption is
that the netting will remain constant in consecutive years.
At the moment, the share price for Apple id $284.43. The earnings per share for the last
trailing twelve months was $12.66. Thus, the P/E ratio for Apple is 22.47. competitive
companies are selected from companies that operate in the same industry as Apple. Some of the
competing companies for Apple include Samsung Electronics and Midea Group Corporation
Limited. The P/E ratio for Samsung Electronics is 15.52, while that of the Midea group
corporation is 14.24. There is a difference between the numbers as Apple has a higher P/E ratio
of 22.47, followed by Samsung electronics at 15.52, and lastly, the Midea group corporation at
14.24.
The P/E of Apple is higher than of its competitors. Hence Apple is overvaluing each of
the dollar earnings, and thus the stocks are overvalued. The P/E of Samsung is high than that of

EVALUATION OF P/E RATIO 3
the Midea group corporation, implying that its capital is overrated, but when compared to Apple,
the P/E is less. Hence it can be stipulated that the stock is undervalued. The P/E of Midea group
corporation is the smallest, and thus the shares are undervalued, but of all the three competitors,
Samsung has a moderate P/E value. Hence, the stocks in the company are appropriately valued.
From the findings, the stocks of Apple are overvalued than the remaining of its
competitors. Therefore, it is not reasonable to buy shares from Apple. The P/E value is indicating
a potential selling opportunity to reduce the exposure of the stockholders to Apple company. If,
for instance, the stock in the apple was undervalued, it would be reasonable to buy the shares.
That is because they underestimate will be indicating a potential buying opportunity that will
increase the exposure of the stockholders to Apple company. Therefore, if an investor or a
shareholder wants to buy stocks and has two options, namely Apple company and Samsung
Electronics, he or she should opt for Samsung Electronics. However, is she or he is after selling
the stocks them Apple company would be the best option available.