What does PER stand for and what is it used for?
When we talk about PER, we refer to a term that is widely used in the economy sector, especially in what is related to companies, since the PER is the price - earnings ratio; which tells us what is paid in the market for each monetary unit from which there is profit.
What is this result for?
This result It is only representative and shows us the valuation in the stock market and how the company could earn profits or generate the maximum possible. This type of data is one of the most required and valuable for companies and its calculation is very simple.
How the PER value is calculated
The PER is equal to the market value of a specific company, that is, the number of shares times the price of each of the shares of the company divided by the net profits of the company. Then the price of each of the shares for the benefits of each share.
How to read the PER result
When we take the value of PER and this value is higher than the current market value, it indicates that the company has very good growth views and the expectations for it are very high.
High values in the PER results
In the case of high values, the shares of the company show completely positive results and the prices of the shares will go up all the time.
This is independent of whether the company has not yet reported profits. Now, in case the share price remains stable, the PER will decrease. You must be very aware of the additions and deletions of the PER of the company; since at any time you can have negative expectations about the company and you must be prepared for it.
In case the PER goes low, the main problem is a type of slow growth in the company or perhaps almost zero. Should stocks fail to rise, the consequence will be low expectations for the company or very slow growth for the future.
Is the high PER expensive shares of my company?
No, your high company's PER does not indicate that your company's shares are expensive or you can sell them at a higher price or that you have to quickly start selling the company's shares. This only tells us that all the company's actions will continue to improve and which are higher than the average growth expectations.
When to sell the shares of my company
You can only think of selling, when the PER is high but the growth expectations of the company are not higher in the future. Here, if you should think about selling.
On the other hand, a low PER in a company does not necessarily mean that stocks are cheap and they have to be cheaper in the market. This company may have a low PER but have positive expectations. However, when the company does not give expectations of growth and is not receiving any type of profit, it will have to be sold as soon as possible to avoid future losses.
When there are growth expectations in the company, but it is not having any type of quotation, it is necessary to wait a little and compare said company with other companies in the sector close to ours, to be able to see what its true growth probabilities are. .
It can also be seen at the country level, as many companies decide to change their location or points of sale rather than closing the company or selling the shares at a much lower price.
What allows you to know the PER and what advantages does it offer you
Regarding the benefits or advantages that this type of calculation gives, it is that it gives us the possibility of making a comparison between companies in the sector that are listed on the stock market and ours. It also allows us to compare our company with those that are nationally and internationally and make an internal calculation of the company to check if it can be sanitized or not.
What disadvantages does Peru have and what problems can it cause?
With regard to the drawbacks of PER, one of the most notorious is that two different magnitudes can be related at the same time, since you can see the profit per share obtained through the financial statements of the company that have been had in the past with the price of the current shares; which can give us the data of future expectations with the rate of sales that has been carried out so far.
If you want to solve this problem to be able to receive more real data, the key is to use an estimated earnings per shareHowever, this method cannot be used in companies that have not received benefits.
To get even more accurate data, what you need to consider is the Price Cash Flow or the known "internal cash flow" and include it in your calculations.
Other ways to calculate PER
One of the first ways to do this is by locating income or profits in the company for a full year. The total value of the year is used as the main value to be able to calculate the BPS
A good example is this:
Suppose we are trying to calculate earnings per share for company X, for example Facebook. What we have that you take as a basis is the net income that the company has, for example 17 billion (surely more).
You must be very careful not to take the quarterly net but the annual net so that it can give you a real result. If you use the quarterly calculation, the result will be three times less than what you need and the results will not be the most appropriate.
The quarterly earnings of the company, only serve to know how the company is doing every three months.
Then you must know how many shares of the company are in circulation. Suppose that in our example, the company has 8.000 shares.
The last step is to divide your net income by the shares you have outstanding. 17 billion / 8.000.
I have to get the PER from my company, how does it work?
All companies must know the PER it generates, to be able to check if it is a company that will be profitable and when it is.
If we know how the PER works and we know how to interpret the data correctly, this will give us the perfect vision to know which stocks you should choose to make investments with them.
Another example so that you can understand and interpret it correctly is:
Let's imagine that we have a business where we sell computers, each computer costs us around 100.000 euros. In each sale, we take a profit from each of the computers 10.000 euros. Over 10 years, we will have already recovered all the investment that we made in the beginning. This means that our business has a PER of 10 = 10 years.
If we want to take this to the world of the stock market, the 10 PER that we have obtained means that until 10 years have passed the company will have losses of some kind or at least it will not have 100% profits.
We must know that while we have a lower PER, the return on investments will be much better.
What do I do if my PER is always negative
There are times when companies always have a negative PER. This means that your company is losing money and the investment is not going to be recovered. The PER is something that is changing but when it has given us the same PER too many times or it changes for the worse, it is clear that something is not going well.
As we must do in these cases is to see where the company is having losses is to recognize what the problem is and begin to take serious precautions to prevent our actions from falling completely.
How can I find out the data of other companies similar to mine
If you want to know a little more closely the data of other companies similar to yours to see how they are handled, there is a page called invesgama.com where you can find out all the data of the companies that are on the IBEX.
In order to be part of the companies that make up the IBEX, you should know that disciplined is essential, since your company will be reviewed every three months through sales reviews and PER reviews every year.
Having all the constant information of your company will help you see when there are leaks or losses in time to improve the situation and ensure that our actions do not go down.