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01/30/2024 |

Visualize Value with The P/E Ratio Indicator Suite

Hello, traders, and welcome to another custom indicator announcement from your friends here at TrendSpider! In this update, we’re very pleased to bring the all-new P/E Ratio and P/E Ratio Comparison indicators to the platform. Details after the jump!

This is the header image for the p/e ratio indicator suite blog post. You can download the all new p/e ratio indicators via the links in the following section.

What Is A P/E Ratio?

To understand how to utilize these new indicators, one must first understand what a P/E Ratio measures. The Price-to-Earnings (P/E) Ratio is a financial metric used to assess the valuation of a company’s stock and is one of the most widely used tools for stock valuation. It is calculated by dividing the current market price per share of a stock by the company’s earnings per share (EPS). In essence, the P/E Ratio represents your cost to buy $1 of a company’s earnings.

Importing The Indicators

The P/E Ratio and P/E Ratio Comparison indicators are custom indicators that can be added to your charts simply by subscribing to them. When you click this link for the P/E Ratio indicator or this link for the P/E Ratio Comparison indicator, a new browser tab will open and you’ll see an image like the one below. Click ‘Login & Import’.

This is an image of the download screen for the new P/E Ratio indicator. Click here to download the indicator to your account now!

After clicking ‘Login & Import’, you’ll be shown the below image. Here, click the ‘Subscribe’ button in the bottom right-hand corner.

This is an image of the screen you'll see when you subscribe to the p/e ratio indicator. Just click 'subscribe' in the bottom right hand corner and it will be added to your account.
Once subscribed, you can load the indicators onto your charts via the ‘Indicators’ button. Just type in ‘P/E’ in the search bar, select them, and then hit ‘Apply’.

This is an image that shows the p/e ratio and p/e ratio comparison indicators.

Key Things To Know

Indicator Components

The P/E Ratio and the P/E Ratio Comparison indicators contain one editable criterion in common; The P/E Ratio ‘Type’. There are two types to choose from; ‘Quarter’ and ‘Trailing’. The default setting is Trailing.

P/E Ratio per Quarter:

  • The P/E ratio per quarter provides a snapshot of the valuation of a company based on its most recent quarterly earnings and is useful for investors who want to assess the company’s performance and valuation on a more recent basis.
  • Formula: P/E Ratio per Quarter = Current Market Price per Share / Earnings per Share (EPS) for a specific quarter.

Trailing P/E Ratio:

  • The Trailing P/E ratio is calculated using the company’s historical earnings data from the past 12 months (four quarters) and takes into account the actual earnings that the company has reported over the previous year.
  • Formula: Trailing P/E Ratio = Current Market Price per Share / Earnings per Share (EPS) for the past 12 months.
This is image showing the p/e ratio measurement dropdown menu for the p/e ratio and p/e ratio comparison indicators. Traders can choose between quarterly and trailing.
Scale:

  • On the P/E Ratio Comparison indicator, you’ll also be able to choose either ‘Linear’ or ‘Log’ scale to display your charts. In linear scale, spacing between consecutive values or intervals is constant while in Log scale, spacing between intervals increases exponentially.

This is an image that shows the different scale options, linear and log.

Differences Between P/E Ratio and P/E Ratio Comparison

P/E Ratio Indicator:

  • Purpose: The P/E Ratio Indicator provides the P/E ratio for the specific stock you are currently viewing on a stock chart.
  • Functionality: It dynamically displays the P/E ratio of the stock you are analyzing, and the value changes as you switch between different stocks on the chart.
  • Use Case: This indicator is useful for quickly assessing the valuation of the stock you are actively reviewing, allowing you to gauge its relative valuation based on its current price and earnings.

P/E Ratio Comparison Indicator:

  • Purpose: The P/E Ratio Comparison Indicator allows you to compare the P/E ratios of up to 5 different stocks simultaneously, regardless of which stock chart you are viewing.
  • Functionality: It provides a fixed reference point for comparing multiple stocks. By default, this indicator is preset to display the P/E ratios of MSFT, AAPL, GOOGL, NVDA, and TSLA. You can manually change these names via line 4 in the source code pictured below. You can save your unique version(s) and create comparison charts per your preferences.
  • ‘Base’ setting: This line represents the P/E ratio of the ticker symbol you’re currently analyzing on your chart. If said ticker is one of the names included in your comparison, the ‘Base’ line will match the P/E line of that name. It is not possible to utilize this indicator when viewing a chart that does not have a P/E ratio (ETF, Index, Futures, etc.).
  • Use Case: This indicator is valuable when you want to perform a side-by-side comparison of the P/E ratios of several stocks to identify potential investment opportunities. It remains consistent across different charts, helping you make comparisons without switching between them.

This is an image of the source code of the P/E Ratio Comparison indicator. In line 4, you can manually define the tickers you'd like to compare and save alternative versions based on different sets of tickers.

How To Incorporate P/E Ratios Into Your Analysis

The P/E ratio can provide insight into the market’s perception of a company’s future earnings potential and its current stock price, and traders and investors utilize it in several ways.

  • Valuation Comparison: The P/E ratio allows investors to compare the relative valuation of different stocks in the same industry or sector.
  • Assessment of Growth: A high P/E ratio is typically associated with the belief that the company will experience robust future earnings growth, while a low P/E ratio may suggest that investors have more conservative expectations for the company’s future earnings potential.
  • Risk Assessment: A higher P/E ratio reflects optimism about future earnings but doesn’t necessarily mean lower risk. Conversely, a lower P/E suggests caution but doesn’t directly indicate higher risk; risk assessment should consider multiple factors.
  • Comparison with Historical P/E: Investors compare current P/E to historical P/E to understand whether a stock is currently over or undervalued.
  • Sector and Market Analysis: P/E ratios are used to compare individual companies within the same sector as well as against the broader market’s average P/E ratio. This helps investors understand the current market conditions as well as potentially identify trends.

Examples

NVDA

As NVDA’s price has risen since last summer, the stock has become increasingly cheaper to own as earnings growth outpaces stock price appreciation.

This is a P/E Ratio chart for NVDA, which shows how the P/E ratio has dramatically declined as the price has increased.

AMD

In contrast, as the price of AMD has increased over the last quarter, investors have had to pay higher premiums to own the stock.

This is an image of AMD, whose P/E ratio has increased dramatically over the last quarter as the price of the stock has increased.

TSLA

Despite failing to meet expectations with this quarter’s report, bulls are still comfortable paying 55x earnings for the stock.

This is a chart of TSLA p/e ratio, which shows buyers continuing to show up at the 55 level.

P/E Comparison (NVDA, AMZN, AAPL, MSFT, and GOOG)

By comparing the P/E ratios of the five largest companies by market cap, traders can contrast NVDA and AMZN’s historical high-cap/low-profit nature to AAPL, MSFT, and GOOG’s more robust, lower P/E ratios.

This is a chart of the pe ratio comparion indicator showing the relationship between amzn, nvda, msft, aapl, and googl.


As always, we hope you find this new set of indicators useful! If you’re a developer and would like to make your own versions, we’ve made the code public for you to experiment with! Please feel free to share your creations with our trader community in the Official TrendSpider Discord Server! If you have any questions, reach out to us via the ‘Contact Us’ button in the bottom right corner of your chart view.