Hi Anyone here cares to share wether they calculate the P/E ratios of companies themselves or if they trust data providers, and if so which one ? Right now checking Mylan, Bloomberg gives a P/E ratio of 17.24, Yahoo finance 84+ and IB 82.9 and I find similar discrepancies on other stocks. Why is Bloomberg so far off ? Thanks in advance for all related input
@luisHK Have you read Damodaran ? He does an excellent job of explaining how P/Es are used and (mostly !) abused and the various ways in which they can be calculated. No doubt if you spent enough time on your Bloomberg tweaking the parameters you could probably (eventually !) match anyone else's figures..... To quote one phrase from his book : And that's just the tip of the iceberg for the EPS component. He also points out how you can also sometimes see people making adjustments for extraordinary items and accounting rules. Damodaran also explains that some people also like to mess around with the Price component too (e.g. use average over period instead of spot). Your post serves well to highlight the dangers of blindly looking at P/E's without knowing how they are calculated. Its just one of the many traps people fall into with P/E ratios and other ratios. I am strongly of the opinion that anyone doing fundamental valuation of any sort (even just "basic" using relative valuation such as using P/E ratios) should have a copy of Damodaran on their bookshelf !
Likely Bloomberg is using adjusted earnings and the others are using gaap. I would trust Bloomberg over the other two sources.
Thanks both for your replies. Tim I haven't read Damodaran, will look him up, but I have my plate full with reading material for over 1 month. I sure need to understand better the intricaties of valuation ratios though, especially now that I select a bunch of stocks for long term hold. So penning down Damodoran for next's book batch buying. I'm not well versed in those definitions, and saw before there are a number of way to calculate p/e ratios but don't know which one I should follow. Checking ratios on IB's company fundamentals, they are very scary, especially right after I read an article about Mylan's alledged low valuation. IB's ratio " is calculated by dividing the current price by the sum of the diluted earning per share from continuing operations BEFORE Extraordinary Items and Accounting Changes over the last four interim periods Interval : most recent quarter" Bloomberg states it's the trailing twelve months p/e, I've followed bloomberg (their public website) to chose some international stocks before, hopefully Bbg uses the main calculation method used in valuation methods, as it is not the first time I see the value they give way lower than IB's.
Ok looked him up, several books are available here (at least Applied corporate finance, Damodaran on valuation in english, maybe more, and definetely more translated) , which one do you advise ?
Luis, the reason I would rely on BBg if you had to rely on one number blindly is because they take data analytics seriously. It's unlikely they will have a "typo" error. For everyone else it's an extra feature just to fill some screen real estate. But as Tim said, it's good to know what is involved in the calculation. And the question of gaap vs adjusted is a controversial one these days as the difference between the two has never been wider (implying management are using adjustments to make their earning look better). You can also look at cashflow and free cashflow for an indication of your earnings are making sense.
I agree, he does have quite a few books under his name ! My understanding is that it's mostly a choice between these two : "Damodaran on Valuation" I've heard referred to as "the Bible", its 700 pages long and covers pretty much everything under the sun. "Investment Valuation" is perhaps more focused on "investment" and doesn't go into so much depth on certain topics. Personally, I've got "Investment Valuation". It is also worth pointing out that he does provide a lot of content free of charge on his website (http://pages.stern.nyu.edu/~adamodar/), and his Blog is certainly worth following (http://aswathdamodaran.blogspot.com), he publishes lots of "real-life" valuation examples on his blog. He also has a YouTube channel where he discusses certain topics (https://www.youtube.com/channel/UCLvnJL8htRR1T9cbSccaoVw).
P.S. Quick note on the above.... Obviously as with most things in finance, it could be argued there's no "right one" to follow. Some of the most clever PE calculations I've seen use a sort of combination of a few methods. The most important thing (remembering that PE is a relative valuation metric) is to ensure you remain consistent. Pick your preferred methodology and make sure you apply it consistently across the relative valuation universe of your choice. P.S.P.S. I would probably agree with @newwurldmn, in that if you're not going to be calculating your own PEs from scratch and just want some "rough" numbers, then I would probably go with BBG (or CapIQ or Factset) numbers first. Not necessarily because they will be the right numbers for your application, but because at least the numbers will be consistent and accurate, because as @newwurldmn says, those guys take analytics seriously.
They are all correct. Your issue is that you haven't defined the "earnings" part of the P/E ratio. If you don't understand fundamentals, don't try and compare different providers until you do. "There are three kinds of lies: lies, damned lies, and statistics." - seems to apply here.
Thanks again all for your input, very helpful. I apreciate you and Tim pointing at shortcuts (Bbg ) until I go through studying the issue a least half seriously, and if the difference between GAAP and adjusted returns has to do with differences in p/e values for the same company as wide as 17 and 84 according the method adopted I can see why there is controversy. Tim, I'll try to get Investment valuation, a 700 page bible sounds llike I won't get through it - as happened with other technical bibles before