What is the concept of P/E ratio in the stock market and how does it affect stocks?

P/E ratio refers to the ratio of stock price to earnings per share in a survey period (usually 12 months). Investors usually use this ratio to estimate the investment value of a stock, or use this indicator to compare the stocks of different companies. P/E ratio is usually used as an indicator to compare whether stocks with different prices are overvalued or undervalued. However, it is not always accurate to measure the texture of a company's stock with price-earnings ratio. It is generally believed that if the price-earnings ratio of a company's stock is too high, then the price of the stock is in a bubble and its value is overvalued. However, when a company grows rapidly and its future performance growth is very promising, the current high P/E ratio of stocks may just accurately measure the value of the company. It should be noted that when comparing the investment value of different stocks with P/E ratio, these stocks must belong to the same industry, because the company's earnings per share are close at this time, and the comparison is effective.

Calculation method

P/E ratio = price of common stock per stock market ÷ Annual earnings per share of common stock is calculated by dividing the net income of the enterprise in the past 12 months by the total number of shares issued and sold. The lower the P/E ratio, it means that investors can buy stocks at a lower price to get a return. Suppose the market price of a stock is 24 yuan and the earnings per share in the past 12 months is 3 yuan, then the P/E ratio is 24/3=8. The stock is regarded as having a P/E ratio of 8 times, that is, every 8 yuan paid can share the profit of 1 yuan. Investors calculate the price-earnings ratio, which is mainly used to compare the values of different stocks. Theoretically, the lower the P/E ratio of a stock, the more worth investing. It is not reliable to compare the P/E ratios of different industries, different countries and different time periods. It is of practical value to compare the P/E ratios of similar stocks.

Market performance

Factors that determine stock prices.

The stock price depends on market demand, that is, it depends on investors' expectations for the following items in disguise:

(1) Recent achievements and future development prospects of the enterprise

(2) Newly launched products or services

(3) the prospect of this industry

Other factors that affect the stock price include the market atmosphere and the upsurge of emerging industries.

The P/E ratio relates the stock price to the profit, which reflects the recent performance of the enterprise. If the stock price rises, but the profit remains the same, or even falls, the P/E ratio will rise.

Generally speaking, the price-earnings ratio is:

★0- 13: The value is underestimated.

★ 14-20: the normal level.

★2 1-28: The value is overvalued.

★28+: It reflects that there is a speculative bubble in the stock market.

Dividend yield

Listed companies usually distribute part of their profits to shareholders as dividends. Divide the dividend per share of the previous year by the current share price, which is the current dividend rate. If the stock price is 50 yuan, and the dividend per share is 5 yuan last year, the dividend yield is 10%, which is generally high, reflecting that the P/E ratio is low and the stock value is undervalued.

Generally speaking, the dividend yield of stocks with extremely high P/E ratio (such as 100 times or more) is zero. Because when the P/E ratio is greater than 100 times, it means that it will take investors more than 100 years to recover their capital, and the stock value is overvalued, so they don't pay dividends.

Average price-earnings ratio

The average P/E ratio of US stocks is 14 times, which means the payback period is 14 years. 14 times the average annual yield of PE is 7% (114).

If a stock has a high P/E ratio, it means:

(1) The market predicts that the future profit will increase rapidly.

(2) The enterprise has always had considerable profits, but the one-time special expenditure occurred in the previous year, which reduced the profits.

(3) There is a bubble and stocks are sought after.

(4) The enterprise has special advantages, which ensures that it can record long-term profits under low-risk conditions.

(5) There are limited stocks to choose from in the market. Under the law of supply and demand, the stock price will rise. This makes the comparison of P/E ratio across time meaningless.

Calculation method

The P/E ratio calculated with different data has different meanings. The current P/E ratio is calculated by the earnings per share in the past four quarters, while the predicted P/E ratio can be calculated by the earnings in the past four quarters, or by the sum of the actual earnings in the last two quarters and the predicted earnings in the next two quarters. The calculation of P/E ratio of related concepts only includes common stock, excluding preferred stock. From the P/E ratio, the growth rate of market income can be deduced. This indicator increases the factor of profit growth rate, which is mostly used in high-growth industries and new enterprises.

Risk judgment

Collective fear of heights

According to Shen Yin statistics, in the past 12 months, the Shanghai and Shenzhen 300 Index rose by 52.7% in the first ten months, and the price-earnings ratio (PE) rose from 14 times to 25 times, while it rose by 38% in the last two months, and the PE rose from 25 times to 35 times. According to the latest data, on February 6, 2006, the average PE of Shenzhen Stock Exchange was PE)43.82 times, and that of Shanghai Stock Exchange was 4 1.28 times -2.6 times that of the world stock exchange market. Therefore, experts teach investors: A shares have a bubble, and it is safe to fall into the bag.

So, what kind of indicator is the P/E ratio?

P/E ratio is the ratio of listed company's share price to earnings per share (year). Namely: P/E ratio = share price/earnings per share (year). Obviously, this is a proportional indicator to measure the stock price and value of listed companies. It can be simply considered that the higher the P/E ratio, the higher the deviation between price and value. In other words, the lower the P/E ratio, the more valuable its stock is.

Quite simply, the P/E ratio is too high, even higher than H shares, which is unimaginable in history. So, why are we on an equal footing with H shares?

However, because the mainland and Hong Kong have different understandings of listed companies, the same company is treated differently in different markets. Perhaps Hong Kong investors are more optimistic about financial banking stocks, while mainland investors know more about the strength of resource state-owned enterprises such as Baosteel. The P/E ratios of A shares and H shares may not be so comparable.

Discrimination of price-earnings ratio

It is one-sided to measure the advantages and disadvantages of different securities markets simply by "P/E ratio". Because investing in stocks is the expectation of the future development of listed companies, the existing P/E ratio can only explain the past performance of listed companies, and cannot represent the future development of the company.

In recent years, China's economy has maintained a high-speed development, which is unmatched by developed countries in the United States and Europe. The rapid development of China's economy is bound to be reflected in the listed companies. Therefore, the further growth of the performance of listed companies in China can be expected. From this perspective, it should be normal that the P/E ratio of listed companies in China is higher than that of developed countries in Europe and America.

At the same time, the P/E ratio, as an indicator to measure the relationship between the price and value of listed companies, is not absolute. In fact, the standard of P/E ratio is closely related to the deposit interest rate of domestic currency. At present, the annual interest rate of the US dollar is around 4.75%, so it is normal that the P/E ratio of the US stock market is around1(4.75%) = 21times. Because, if the P/E ratio is too high and investment is not as good as deposit, everyone will give up investment and deposit money in the bank to collect interest; On the other hand, if the P/E ratio is too low, people will take out their deposits to invest in order to obtain investment income higher than the deposit interest. At present, the one-year deposit rate of RMB in China is 2.79%. If interest tax is also considered, the actual deposit interest rate is about 2.23%, and the corresponding P/E ratio of 2% interest rate is1(2.23%) = 44.8 (times). From this perspective, the China stock market's price-earnings ratio of 45 times is basically reasonable.

There is a reason for being high.

At present, the average P/E ratio of the US Dow is 2 1 times, and that of the S&P 500 is 24 times. The annual GDP growth in the United States is only 2% ~ 3%, and economic growth is full of uncertainty. China's economic growth in the next 10 year is predictable. This can be seen from the annual reports of listed companies.

Judging from the situation of 158 companies that have published annual reports as of February 27th, the average earnings per share is 0.3 1 yuan, and the earnings per share of 37 companies are above 0.5 yuan. From 680 companies with performance forecast, 254 companies predict that their performance will increase by more than 50% in 2006; 40 companies predicted a slight increase in performance, and 159 companies predicted a turnaround. Small and medium-sized board 1 16 All listed companies published their annual reports in 2006, and their net profit increased by 25. 16% on average. The net profit growth of listed companies in 2006 is a foregone conclusion, and energy, petrochemical, real estate and machinery are the main industries with high returns.

Most institutions are optimistic about the performance growth expectations of listed companies in the next two years. From the comparison of the growth rates of the purchase price index of raw materials, fuel and power and the ex-factory price index of industrial products, the purchase price index of raw materials increased by 4.7% in June 5438+ 10, and the ex-factory price index of industrial products increased by 3.3% year-on-year. Although the growth rate is still upside down, the difference has been declining since June last year, 65438+ 10. The cost pressure of enterprises has been reduced, and the expectation of profit improvement is optimistic. Judging from the extended growth opportunities brought by the institutional reform after the share reform, the performance of A-share listed companies will accelerate after the share reform due to the improvement of corporate governance structure and operational efficiency brought by institutional reforms such as the consistency of shareholders' interests and equity incentives, as well as the performance thickening effect brought by the future asset injection and overall listing of major shareholders. Considering the additional income brought by income tax merger, the expectation of substantial growth in the performance of listed companies in the next two years is quite optimistic.

Still need to be cautious.

Judging from the current market price-earnings ratio, it has fully reflected the expectation of future performance growth, and the PE level of Shanghai and Shenzhen 3006 points is about 45 times. Reasonable is reasonable, but it is difficult to estimate how much room to rise.

Generally speaking, the current overall pricing level of A shares is not low, which fully reflects the expectation of future performance growth, but it is also compared with the overall premium of A shares relative to H shares. This phenomenon is completely different from that in early 2006. Although the performance growth trend in the next two years has not changed, the current share price has fully reflected this performance growth expectation. Under the background of limited stock supply, fanatical funds pursue limited high-quality stocks, and the result is inevitably inflated prices.

From a macro point of view, high credit and rebound in investment will make the tightening economic policy no suspense-this has been verified in the recent interest rate hike measures. Judging from the situation in March, the liquidity of the stock market is still difficult to be substantially affected in a short time. The financial data of June 5438+ 10 released by the central bank showed that the growth rate of savings deposits continued to decline, while demand deposits increased substantially. The popularity of the stock market has attracted a large amount of savings funds to continue to flow to the stock market, and the market capital supply is still abundant in the short term. However, considering the market volatility practice during the two sessions each year and the peak period of lifting the ban on non-tradable shares in April and May, it is inevitable that the market will fluctuate widely. Dance with foam

Professor Robert Shiller of Yale University, the author of Irrational Prosperity, is famous all over the world for successfully predicting the bursting of the Internet bubble in 2000. But what many people don't know is that 1996, 12 In February, when the biggest bull market in history was getting better, Professor Shearer submitted an academic report to the Federal Reserve, arguing that the market value was obviously overvalued. However, this cry "Wolf is coming" has been shouted for more than three years. During this period, the Dow Jones index rose from 65438+6560.9 1 at the close of 0996 to the highest point of 1 1908.50 in 2000, with an increase of 8 1.5%.

In the same period, the Nasdaq index soared from 129 1.38 to the all-time high of 5132.52 in March 2000, with an increase of 297.44%, that is to say, the market tripled. If an investor thinks that the market is overvalued and withdraws from the market at the end of 1996, then he has undoubtedly missed the most profitable period in the bull market.

Li Xunlei, director of Guotai Junan Securities Research Institute, believes that there must be a bubble in the A-share market, and how long the bubble can last is the key. A-share bubble can last for quite a long time. The reason is that China's economy continues to improve and the RMB continues to appreciate. He said that almost all industries have bubbles, but this is more or less a problem. China's economic growth shows no signs of slowing down, and the short-term bubble will not burst. He suggested that investors dance with bubbles, and the places that are most prone to bubbles can still participate.

reference value

The price-earnings ratio of peers has reference value; No matter from the stock or the market, the historical average P/E ratio has reference value.

P/E ratio is an important reference index for individual stocks, stocks and the broader market. Any stock's P/E ratio significantly exceeds that of similar stocks or the broader market, and it needs sufficient reasons to support it, which is often inseparable from the key point that the company's future earnings are expected to grow rapidly. A company enjoys a very high P/E ratio, indicating that investors generally believe that the company's earnings per share will grow rapidly in the future, so that the P/E ratio will drop to a reasonable level in a few years. Once the profit growth is not ideal, the motivation to support the high P/E ratio is unsustainable, and the stock price often falls sharply.

P/E ratio is a valuable stock market indicator, which is easy to understand and obtain, but it also has many shortcomings. For example, earnings per share, as the denominator, is calculated according to the prevailing accounting standards, but companies often make adjustments as needed. Therefore, in theory, the earnings per share announced by two companies with the same cash flow may be significantly different. On the other hand, investors often don't think that the profit figures calculated in strict accordance with accounting standards truly reflect the profitability of the company on the basis of going concern. Therefore, analysts often adjust the company's formal formula of net profit by themselves, such as using EBITDA instead of net profit to calculate earnings per share.

In addition, as a molecule of P/E ratio, the market value of a company cannot reflect its liabilities (leverage). For example, two companies with the same market value of $65.438+0 billion and the same net profit of $65.438+0 billion have P/E ratios of 654.38+00. However, if Company A has a debt of $654.38 billion and Company B has no debt, then the P/E ratio cannot reflect this difference. Therefore, some analysts use "enterprise value (EV)"-market value plus debt minus cash-instead of market value to calculate P/E ratio. Theoretically, the ratio of enterprise value /EBITDA can avoid some shortcomings of pure P/E ratio.

Index defect

The price-earnings ratio used to measure whether the average price of the stock market is reasonable has some inherent shortcomings:

★( 1) The defects of the calculation method itself. The choice of sample stocks of constituent stock index is arbitrary. The average price-earnings ratio calculated by various countries and markets is related to the sample stocks selected. If the sample is adjusted, the average P/E ratio will also change. Even in the comprehensive index, there is a problem that the impact of loss-making stocks and meager profit stocks on P/E ratio is discontinuous. For example, the P/E ratio of Shanghai A shares on February 3 1 and 200 1 is 37.59 times. If Sinopec had no profit1665438+54 million yuan in 2000, which was 0.0 1 yuan, the P/E ratio of A shares in Shanghai stock market would rise to 48.53 times. Ironically, if Sinopec loses money, it will be excluded from the calculation of P/E ratio, and the P/E ratio of A shares in Shanghai stock market will drop to 43.3 1 times, which is really "the more losses, the lower the P/E ratio".

(2) The price-earnings ratio is very unstable. With the cyclical fluctuation of the economy, the earnings per share of listed companies will fluctuate greatly, so will the average price-earnings ratio calculated in this way, so as to adjust the stock market, which will inevitably bring stock market turmoil. 1932 at the lowest point of the us stock market, the price-earnings ratio was as high as 100 times. Squeezing the stock market bubble on this basis will be absurd and dangerous. In fact, that year was the best time to enter the market in the history of the United States for a hundred years.

★(3) Earnings per share is only the influencing factor of stock investment value. Investors don't have to look at the price-earnings ratio when picking stocks. It is difficult for you to arbitrage according to the price-earnings ratio, and it is also difficult to say that a stock has investment value or no investment value according to the price-earnings ratio. It is puzzling that the P/E ratio explains the value of individual stocks so poorly that it is regarded as the most important basis to measure whether the stock market has investment value. In fact, the value or price of a stock is determined by many factors, and it is unscientific to use the price-earnings ratio as an indicator to judge whether the stock price is too high or too low.

Treat correctly

In the stock market, when people completely use the P/E ratio to measure the stock price, they will find that the market becomes unreasonable: the P/E ratio of stocks is quite different, which is inconsistent with the bank interest rate; The higher the P/E ratio, the better the market performance. Is the P/E ratio meaningless? Actually, it's not. It's just that investors can't correctly grasp the understanding and application of P/E ratio.

★ 1. P/E ratio is of overall guiding significance to the market.

★2. The P/E ratio should consider the characteristics of the stock market.

★3. Look at the price-earnings ratio from a dynamic perspective.

The high P/E ratio reflects investors' recognition of the company's growth potential to some extent, not only in China stock market, but also in mature voting markets such as Europe, America and Hongkong. From this point of view, it is not difficult for investors to understand why the price-earnings ratio of high-tech stocks is close to or exceeds 100 times, while the price-earnings ratio of motorcycle manufacturing and steel industry is only 20 times. Of course, this does not mean that the higher the price-earnings ratio of stocks, the better. The China stock market is still in its infancy, and the bookmakers arbitrarily raise the stock price, resulting in a very high P/E ratio and huge market risks. Investors should analyze the background and basic quality of the company and make a reasonable judgment on the price-earnings ratio.

Attention problem

P/E ratio is a very rough indicator. Considering comparability, it is meaningful to compare the P/E ratios of the same index at different stages, but we should be especially careful when comparing the P/E ratios of different markets horizontally.

★( 1) composite index and composite index price-earnings ratio, component index price-earnings ratio, component index price-earnings ratio. The sample stocks of the composite index include all the stocks in the market (except pt stocks in Shanghai and Shenzhen stock markets), and the P/E ratio is generally high, while the sample stocks of the component index are carefully selected, usually with large average share capital and good average performance, so their P/E ratio is relatively low. The P/E ratio of foreign stocks we often see is mostly the P/E ratio of component indexes. If we compare them with the P/E ratio of our composite index, we have made a conceptual mistake.

★(2) The P/E ratio should be linked to the benchmark interest rate. The benchmark interest rate is the reference coefficient of people's investment return rate, and it also reflects the capital cost level of the whole society. Generally speaking, there is a positive correlation between the reciprocal of the benchmark interest rate and the average price-earnings ratio of the stock market when other factors remain unchanged. If the basic interest rate is low, the reasonable price-earnings ratio can be higher; If the benchmark interest rate is high, the reasonable P/E ratio should be lower. At present, the rediscount rate of the Bank of China is 2.97%, the one-year savings deposit yield is 1.80%, the federal funds rate in the United States is 1.75%, and the rediscount rate of the Federal Reserve is 1.25%. There is little difference in benchmark interest rates between China and the United States, but vertically, the current benchmark interest rate in China is very low. According to authoritative research, according to China's current price level and the country's future proactive fiscal policy and moderate monetary policy orientation, China may lower interest rates again.

★(3) The price-earnings ratio should be linked to equity. The average P/E ratio is related to both the total share capital and the circulating share capital. The smaller the total share capital and circulating share capital, the higher the average P/E ratio will be (Stansted Management Consulting China Company, 200 1), and vice versa, whether in China or the west. According to statistics, on June 6th, 2006, the arithmetic average P/E ratio of 770 sample stocks (excluding PT stocks, ST stocks, loss-making stocks and 5438+0 stocks with earnings less than 0.05 yuan per share in the middle of 2006) in China Shanghai and Shenzhen stock markets was 29.43 times, of which 100 had the smallest total share capital. The arithmetic average P/E ratio of 100 listed companies with the largest total share capital is only 19.82 times, and the former is 2. 16 times that of the latter. In the United States, the average price-earnings ratio of small-cap stocks is several times higher than that of large-cap stocks, and the market price-earnings ratio of Nasdaq is higher than that of NYSE, which is related to the equity factor.

Therefore, when looking at the average price-earnings ratio of a market, we should also consider the structure of listed companies in this market. If it is a market dominated by small equity companies, its reasonable P/E ratio should be higher. If we don't consider the share capital composition of listed companies in the stock market, we can't explain why, even if the original price level of listed companies remains unchanged, as long as we go to Sinopec and then go to PetroChina, China Mobile and CNOOC, the average P/E ratio will drop by more than ten times, and the P/E ratio will drop to the so-called "reasonable area". In fact, on February 365,438+0,5438, 2006, the P/E ratio of Shanghai A-share index dropped to 37.59 times. If Sinopec does not go public, this number will increase sharply to 43.365438 times +0.

★(4) The P/E ratio should be linked to the ownership structure. The P/E ratio is also related to the ownership structure. If the shares are fully circulated, the P/E ratio will be lower; If the shares are not fully circulated, the P/E ratio of the tradable shares will be higher. The reason is that if the total value of listed companies remains unchanged and shares are divided into tradable shares and non-tradable shares, the liquidity of assets will increase the value of assets (liquidity premium). Generally speaking, the price per share of tradable shares is naturally higher than that of non-tradable shares. The lower the price of non-tradable shares, the higher the price of tradable shares, and the result is that the average price-earnings ratio of tradable shares is higher than that of non-tradable shares. The smaller the proportion of tradable shares in China's share capital, the larger the price difference between tradable shares and non-tradable shares, and the higher the average P/E ratio of tradable shares.

At present, in the China market, non-tradable shares account for two-thirds of the total share capital, so it is normal that the P/E ratio is higher when the tradable shares are not in circulation.

★(5) The P/E ratio should be linked to growth. At the same price-earnings ratio of 20 times, the market where the average annual profit of listed companies increases by 7% is far more valuable than the market where the average annual profit of listed companies increases by 3%. According to the classic stock intrinsic value evaluation model, as shown in formula (1). Where V is the intrinsic value of the stock, D is the dividend per share to be paid indefinitely in the future, K is the yield to maturity, and G is the fixed growth rate of each dividend. From the formula (1), it can be seen that, assuming other factors remain unchanged, growth has a great influence on the intrinsic value of stocks, and thus on the market price and average P/E ratio.

V = D. (left+right)

k–g( 1)

For a simplified example, suppose that the net profit of listed companies grows with the economy, and the average annual economic growth rate in China is 7% and that in the United States is 3%, then the average intrinsic value of China stock is 2.42 times that of the United States, and the reasonable P/E ratio of China stock market is 2.42 times that of the United States. From the perspective of growth, the price-earnings ratio of Nasdaq index is relatively high, and it makes sense that the average price-earnings ratio of emerging market countries is relatively high.

★(6) P/E ratio is related to some institutional factors, such as the selectivity of residents' investment methods, investment ideas, and a country's system (culture, tradition, customs, habits, etc. ), foreign exchange control and other institutional factors are all related to the average price-earnings ratio.

(7) The average P/E ratio of China stock market should also consider the issue price. Before 1997, referring to the interest rate level in China at that time, the management strictly controlled the IPO pricing, and generally the IPO P/E ratio should not exceed 15 times. In order to take care of remote areas, the price-earnings ratio of stocks like Zhu Jin in Tibet is about 20 times. Later, in order to promote the market-oriented reform of the securities market, the control of issuance pricing was gradually relaxed. Mindong Electric Power reached 88 times P/E ratio when it was issued in 2000, and the average P/E ratio of ordinary shares remained at 40 to 50 times. The issue price-earnings ratio can be forty or fifty times. How can the average P/E ratio of the secondary market be abnormal? Theoretically, the higher the P/E ratio, the more funds raised, the stronger the development potential and profitability of listed companies, and the higher the gold content of listed companies' book assets, which is invisible from the static P/E ratio. Because the static P/E ratio can't fully reflect the influence of the higher P/E ratio in recent years, it is normal that the average P/E ratio in the secondary market is slightly higher than that in previous years.

Application of P/E ratio

There is hardly anyone in the market who does not pay attention to the price-earnings ratio of stocks. This method is simple and intuitive. If the P/E ratio is used well, it will greatly help investors improve their returns.

The price-earnings ratio of stocks can roughly reflect the excitement of the market. In the early American market, the P/E ratio was not high, which was less than 10 times when the market was depressed and about 20 times when it was high. The P/E ratio in Hong Kong is roughly the same. The P/E ratio of China stock market is about 15 times when it is low, and more than 40 times when it is high (for example, 200 1 year). After the price-earnings ratio is too high, it will always come down. We can't judge the duration, that is to say, it's hard to judge how long the high P/E ratio can last, but it won't last long, that's for sure.

The P/E ratio of enterprises in general growth industries is higher, such as consumption, tourism, bank real estate and other industries, and its P/E ratio is much higher than that of similar foreign enterprises. This is because investors are optimistic about the future expectations of these enterprises and are willing to pay higher prices for their stocks, while those enterprises with low growth or lack of growth are unwilling to pay high P/E ratio. For example, in the steel industry, investors expect that there is little room for improvement in the company's performance in the future, so they generally give 650.

In the 1990s, the P/E ratio of American technology stocks was so high that it could not be completely summarized by a bubble. At the beginning, a large number of technology stocks such as Microsoft, Intel and Dell were supported by high-speed growth. Their P/E ratio and performance growth are still very consistent before 1998. However, after a large number of Internet stocks joined in, the market expectation became overly optimistic, the P/E ratio seriously exceeded the performance growth rate, and even the stocks with no performance were heavily hyped, resulting in that technology stocks did not represent a certain high P/E ratio. There must be enterprise performance growth. Without the guarantee of performance growth, the high P/E ratio can easily form a bubble. Similarly, if there are high-growth enterprises in low-growth industries, they can also be given a higher P/E ratio.

Industry inflection point, performance inflection point and enterprise P/E ratio may be too high. Double growth in performance, the price-earnings ratio will soon decline. It is not comprehensive to look at the price-earnings ratio of a single enterprise simply by numbers. For example, the price-earnings ratio of CITIC Securities last year was more than 100 times, but its share price soared and its price-earnings ratio continued to decline. Including some low-profit enterprises, this will happen when the performance turns. Therefore, while using the P/E ratio, we must consider the specific situation of the industry where the enterprise is located.

We can't simply compare the price-earnings ratio of domestic enterprises with that of foreign countries. Because different industries in each country have different stages of development. For example, China's aviation industry should be regarded as a sunrise industry, while foreign countries can only be regarded as a balanced development or shrinking stage. China's real estate industry is in a high-speed development stage, but in countries with a high degree of industrialization, it is developing steadily, resulting in a great difference in P/E ratio. Another example is banking. We are in a stage of rapid development, and there is still a lot of room for growth in the future. However, after a hundred years of competition and elimination, the growth rate of western countries has dropped a lot, so the P/E ratio will be very different. The development space of an industry should be closely related to a country's different development stages, different industrial policies and consumption preferences. Different growth space leads to different expectations and different pricing standards. It is easy to make mistakes simply by comparing the pricing standards of mature western markets.

When considering the price-earnings ratio, don't forget three points: first, how does it compare with the speed of enterprise performance improvement? The second is the sustainability of corporate performance improvement. The third is the certainty of performance expectations.