P/E of a stock ?

Question

I understand what P/E is. But consider http://finance.yahoo.com/q?s=goog I am wondering why it is quoting at a P/E of 55 and not 30 ? Who decides as to what P/E the stock must quote and How ?

Read my question carefully. "Who decides as to what P/E the stock must quote and How ?"

Answer 1

The P/E ratio is strictly based on a formula.

P/E ratio = Stock's price divided by EPS

In the past it was used by many as a gauge of a stock that's cheap. But nowadays, it's not nearly as important as "hot" stocks tend to have higher and higher P/E ratios.

In Goog's case, you just take the price of around 378 this AM and divide it by their 6.85 EPS and you get a P/E Ratio of approx 55.

For them, you might compare it to a Ebay, or YHOO, or AMZN to see how "high" of a P/E ratio other stocks in their sector are trading at.

Answer 2

The PE ratio= stock price/EPS. Or the PE ratio x the EPS = stock price:

378.29 (stock price) / 6.85 (EPS) = 55.27 (PE ratio)