PER, PBR, ROE — just these three
Scary names, one-line meanings. They actually help you pick.
Start studying stocks and a flood of acronyms hits you — PER, PBR, ROE. Memorizing them all is a headache. But knowing just these three opens your eyes when sizing up a company. Today, just three — remembered as one word each.
PER — how many years to break even?
PER tells you whether the price is expensive or cheap relative to the company's earnings. A PER of 15 means: at today's earnings, it takes 15 years for the company to earn back its price.
So a low PER reads as 'trading cheap,' a high one as 'trading expensive.' But companies people expect great things from tend to carry high PERs — so low isn't automatically good.
PBR — pricey versus assets?
PBR looks at how many times the price is versus the company's assets. A PBR of 1 means it trades at the value of its assets; below 1 means it trades for even less than its assets.
It can signal 'the price is lower than what you'd get if you sold off the whole company today.' But companies with stale assets or weak business also show low PBR — so check whether there's a reason it's cheap.
ROE — does it run money well?
ROE shows, as a percentage, how well a company earns in a year with the money it has. It's how efficiently it grows the money you entrust to it. Generally, 10% or higher is considered solid.
A company with consistently high ROE is 'good at making money.' Steady over many years matters more than a single flashy year.
What if you look at all three?
Looking at one alone is misleading. A low PER with terrible ROE can be a company that's 'cheap for a reason.' Conversely, a slightly high PER with consistently high ROE can be one that's 'worth the price.' The habit of viewing all three together matters.