What is the average price-earnings ratio in the banking sector?

Answer:

The average price-earnings (P/E) banking firms, and in January 2018, is approximately 25.16. For comparison, the overall market average P/E ratio 71.28, but it is a simple arithmetic average that is skewed by the figures for a very small number of companies with factor P/E for 100 or 200. Average median average shows the average ratio of the banking industry P/E is much closer to typical market conditions. The most successful regional banks, because of the greater potential for rapid growth, tend to have ratios P/E much higher than for major banks (33.24 against 17.09).

The P/E ratio is one of the most widely used indicators for assessing capital investors and analysts. It is easy to calculate. It results from dividing the current stock price to the earnings per share (EPS) and also provides investors with an assessment of the activities of the company in relation to the price that investors must pay for shares of the company. Thus, not only the company, but the assessment of the company’s shares at current price levels, as well.

As with all indicators of capital, P/E ratio as a single number has limited usefulness for analysis. The ratio of P/E is the most important in terms of how it compares with similar companies in the same industry. For example, as of August 2018, “wells Fargo” (VLK), one of the “big four” banks in the U.S., is trading with a P/E ratio of 15 years, while its competitor, Citigroup (C), currently has a P/E ratio of 11.

Higher ratios P/E generally is considered to indicate higher rates of growth and increased earnings potential, or at least that investors expect higher growth rates because they are willing to pay slightly more for the current earnings per share to the company’s stock. Analysts usually interpret the relatively low ratios P/E as indicative of high risk. Firms with lower reinvestment needs, tend to have higher ratios of R/E.

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