Price Earnings Ratio - Is it Good For Measuring Stock Values?

The price earnings ratio, or pe ratio, is one of the most common financial ratios but not necessarily the best understood. It is calculated by dividing the current price by the earnings per share.

Price

If the trailing earnings per share for the last 12 months is used in the calculation, then the ratio is referred to as the trailing pe ratio. If the earnings estimates for the next four quarters are used, the ratio is referred to the forward pe ratio.

This article is about Price

The p e ratio is quite often incorrectly used as a measure of stock value. The intrinsic value of a stock is calculated using the company's economic fundamentals, not its price. The price is what one investor is prepared to pay to another at any point in time. As Warren Buffett has remarked - price is what you pay, value is what you get.

But the price earnings ratio is commonly used as a quick and easy relative measure of stock value by comparing the current p/e of the stock to that of its market sector and to that of the market as a whole. Online brokers' sites should provide this information. This comparison provides an indication as to whether the stock is undervalued or overvalued.

The ratio commonly varies from a low value of four to a high value of 30, but some companies may have P/E's values that lie outside of this range. A p/e of 15 means that the stock price is 15 times annual earnings of the company. That is, 15 years of earnings would be needed to cover the price paid. This can be expressed by the equation...

Price of the share = p/e ratio x earnings per share

One way to use the price earnings ratio is to consider a stock a potential buy when its p/e, or price to earnings multiple, is close to the lower end of its average annual range. It is more likely at that point that the price is close to, or below, its intrinsic value.

However, as the p/e is not an absolute measure of value, it is guess work unless you can more accurately estimate the stock fair value using the fundamentals of the company.

A number of factors may affect the magnitude of the p/e ratio. It may be that the p/e is depressed because the whole market has suffered a downturn as the result of a global recession, or concern of one occurring. In this case, the depressed p/e may have nothing to do with the individual performance of the company, and the company may represent excellent buying.

On the other hand, the depressed value may be associated with some factor that the market has decided will affect the future earnings of the company in question. Reading the company annual and interim reports and market announcements would be a useful exercise.

All stocks exhibit a range of p/e values during any one year as the price of the stock fluctuates. A lot of the variation in the P/E ratio of shares is due to market 'noise' and has little to do with the value of a stock.

Buying a share when its p/e is at the low end of its average annual variation will ensure that, as the p/e rises (assuming it will) and as the earnings of the company grows (assuming it will), the share price will increase over time as per the formula above.

This is why investors should look to buy shares that have good earnings per share growth and have their current price earnings ratio at the low end of their average annual range. As well, high return on equity and low debt should also be a prerequisite for any stock purchase.

Price Earnings Ratio - Is it Good For Measuring Stock Values? People search Price and look in this page

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Why Banks Need Broker Price Opinions - BPOs

What is a Broker Price Opinion?

Price

When a bank or asset manager obtains a new foreclosed listing to sell, they immediately need to know the home's value. Typically a bank will assign one to three agents to evaluate the approximate selling value of a home. These banks expect each agent to submit three comparable sold listings and three comparable active listings as well as an estimate of what the agent thinks the home will sell for.

This article is about Price

A Broker Price Opinion is not as detailed as an appraisal and does not entail as much work. BPOs differ from Appraisals in a number of ways:

Appraisals typically cost over 0. Most BPOs pay brokers between and 0. Appraisals require detailed square footage measurements. BPOs rely on county assessors' recorded measurements. Appraisals use a standard format recognized and used by lenders and mortgage professionals for precise property valuations. BPO's are prepared in different formats and are used simply as decision making tools for asset managers of each bank. Appraisals are typically 15-20 pages long with detailed information on each aspect of a property. BPO's are usually 2 pages long with information pertaining only to a final selling price.

Why Do Banks need Broker Price Opinions?

Asset managers and bank personnel make decisions on several properties every day. Reading through a lengthy 20 page appraisal and filtering out the critical information is a waste of their time. These asset managers need concise, financial documents that make their choices easier. That's why BPOs are so critical to their job. In addition, a BPO saves the bank over 0 per property compared with a standard appraisal. That money adds up quickly and saves the bank thousands and thousands of dollars a year.

Another reason BPOs are preferred by banks is that the turnaround time is much quicker than appraisals. BPOs can usually be performed by agents in under 48 hours. Many appraisers visit the property within 48 hours, but then require another day or two to process the information and create the full report.

How Agents Can Become a BPO Agent

Once a real estate agent understands what a Broker Price Opinion is, they immediately want to learn how to become a BPO agent and start to process BPOs for banks. This is understandable since a good agent can make an extra 0 - ,000 a month simply by signing up with banks and requesting BPO assignments.

The steps to become a BPO agent are fairly simple. The basic process takes about a week. Here is a summary of the basic steps:

Obtain a list of BPO bank departments. Ensure your list has over 100 banks and asset managers. Register on each of these banks' websites as a BPO agent. This process can take over 15 hours to register on all 100 websites, so schedule your time wisely. Follow up with the banks and asset managers to make it clear you want to process BPOs for banks and become one of their preferred agents. Once you receive your first assignment, do a fantastic job and go out of your way to ensure your client is happy. It only takes a couple of solid bank clients to keep you busy with a steady flow of Broker Price Opinion assignments.

As you start your quest to become a BPO agent it's important that you never give up. Once you start to process BPOs for banks, your business will snowball quickly. Good luck!

Why Banks Need Broker Price Opinions - BPOs People search Price and look in this page

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