- (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
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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.]
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