Welcome to the Investing for Beginners podcast! In today’s episode, we will have Brian Feroldi joining us in a first time ever live show here in Cincinnati’s economy fire conference. He will discuss the price to earnings ratio which is the most common and known metric in the investing world. Listen on as he talks why solely using the p/e ratio can be bad and when is it useful to be used on.
Timestamps of the episode:
-Why the price to earnings ratio alone is a bad metric. [01:45]
-The different flavors of the P/E ratio with the focus on how the “E” is structured. [04:15]
-How the earnings of a company can be misleading which makes the P/E ratio wrong. [07:08]
-First reason why a P/E ratio can be misleading: Accrual accounting. [08:12]
-Walking back to the overview and relationships of the three financial statements. [11:05]
-Second reason: Equity investments will either deflate or inflate earnings [13:50]
-Third reason: One time events are mirages and won’t happen often. [16:55]
-Fourth reason: Unsustainable trends work like boom and bust cycles. [19:58]
-Cyclical demand is hard to predict and can be counter-intuitive. [21:27]
-Industry dynamics will dictate how a business really earns. [24:42]
-Fifth reason: Disruption, knowing this is next to impossible as we live in the most disruptive periods in human history due to fast paced tech innovations. [26:42]
-Eight reason: Knowing which phase a company’s business growth cycle can be a hit or miss. [29:00]
-The most important thing in using the P/E ratio. [34:56]
Note: Timestamps may differ and are approximate, depending on your podcast player.
Link to Brian’s website- https://www.brianferoldi.com
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You can find the transcript of today’s show below: