Warning: Do You Know Your P/E Ratio?

  • (0:45) - Understanding P/E Ratios: Breaking Down Funko
  • (9:50) - Tracey’s Top Picks Using P/E
  • (22:20) - Episode Roundup: FNKO, LEN, TSLA, W, GIII
  •                 Podcast@Zacks.com


Welcome to Episode #233 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

Many value investors look for cheap stocks using a Price-to-Earnings ratio, otherwise known as the P/E ratio.

But do you know which P/E ratio you’re looking at?

Trailing Versus Forward P/Es

If you looked at the P/E ratio for toy company Funko FNKO on YahooFinance, you would see that it is 180x.

Shares are up over 90% year-to-date.

It sure sounds like that stock is expensive, right?

But YahooFinance uses the trailing P/E ratio on its summary page, which looks at last year’s earnings.

Other financial sites, like Zacks.com, using the forward P/E, which looks at analyst estimates of 2021’s earnings.

Funko’s forward P/E is just 23.

That’s a big difference if you’re trying to decide if the stock is “expensive” by looking at the P/E ratio.

Watch Earnings This Year

With many companies seeing depressed earnings in 2020 due to the COVID pandemic, the P/E ratios are going to be less reliable, depending on which ones you are looking at.

1.       Lennar LEN has a forward P/E of 9.5 which is similar to its trailing P/E ratio of 10.4. Shares are up big but the forward P/E is lower because earnings are expected to rise about 40% this year.

2.       Tesla TSLA seems to be crazy expensive, with a trailing P/E ratio of 1132. But earnings are expected to rise 90% year-over-year and the shares have gone up just 2% in 2021 which puts the forward P/E at just 167.

3.       Wayfair W was a pandemic winner in 2020 and earnings soared. But earnings are expected to fall 53% in 2021. Wayfair’s trailing P/E is 169 but the forward picture is cheaper, at 138x.

4.       G-III Apparel GIII really got hit in 2020 with earnings dropping significantly. On YahooFinance, it has a trailing P/E ratio of 65 which makes it seem expensive. But with earnings expected to rise 223% in 2021 as shoppers buy more dresses and jeans, it has a forward P/E on Zacks of just 13. That’s dirt cheap.

What else do you need to know about the P/E ratio and finding “value” stocks?

Tune into this week’s podcast to find out.

[In full disclosure, Tracey owns shares of FNKO in her personal portfolio.]

Legal Marijuana: An Investor’s Dream

Imagine getting in early on a young industry primed to skyrocket from $17.7 billion in 2019 to an expected $73.6 billion by 2027.

Although marijuana stocks did better as the pandemic took hold than the market as a whole, they’ve been pushed down. This is exactly the right time to get in on selected strong companies at a fraction of their value before COVID struck. Zacks’ Special Report, Marijuana Moneymakers, reveals 10 exciting tickers for urgent consideration.

Download Marijuana Moneymakers FREE >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Tesla, Inc. (TSLA): Free Stock Analysis Report
Lennar Corporation (LEN): Free Stock Analysis Report
GIII Apparel Group, LTD. (GIII): Free Stock Analysis Report
Wayfair Inc. (W): Free Stock Analysis Report
Funko, Inc. (FNKO): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.