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EghtesadOnline: The average price to earnings ratio of Tehran Stock Exchange-listed companies stood at 6.64 for the first quarter of the current fiscal year (March 21-June 21).

The ratio has grown 3.1% compared to last fiscal's closing rate, Securities and Exchange News Agency reported.

The price-earnings ratio, also known as P/E ratio, measures a company's current share price relative to its per-share earnings. The price-earnings ratio is also known as the price multiple or the earnings multiple. 

According to Investopedia, the price-earnings ratio, in essence, indicates the dollar amount an investor can expect to invest in a company to receive one dollar of that company’s earnings, Financial Tribune reported.

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. A low P/E can indicate either that a company may currently be undervalued or that the company is doing exceptionally well relative to its past trends.

To calculate the P/E ratio, the earnings per share (EPS) must be known, which is most often derived from the last four quarters. This form of the price-earnings ratio is called trailing P/E, which may be calculated by subtracting a company’s share value at the beginning of the 12-month period from its value at the period’s end, adjusting for stock splits if there have been any. Sometimes, price-earnings can also be taken from analysts’ estimates of earnings expected during the next four quarters. This form of price-earnings is called a projected or forward P/E. A third, less common variation uses the sum of the last two actual quarters and the estimates of the next two quarters.

In fact, EPS is the portion of a company's profit allocated to each outstanding share of common stock. It serves as an indicator of a company's profitability. 

TSE data analyzed by Securities and Exchange Organization show that 54 companies with earnings per share of zero or in the negative territory were not considered for calculating the P/E ratio.

The 17 companies making up the investment industry were omitted from calculation as they not obligated to report EPS forecasts.

Therefore, the ratio calculated was based on the market capitalization of 273 firms equaling 3.95 quadrillion rials ($94 billion) with a total EPS forecast of over 590 trillion rials ($14 billion).

The report indicates that out of the 37 TSE industries, four of them have an average P/E ratio of less than 6, while it is more than 10 for 11 industries. The rest have a P/E of 6 to 10.

Among those standing above 10, two have an average P/E of more than 100. In fact, the leather industry recorded a ratio of 843 for the period, followed by textile with 113. Both industries are tracking single listed company shares.

Next come transportation and storage with a P/E of 25; paper with 22; tiles and ceramic as well as auto and part manufacture, each with 11; and radio and TV manufacture, agriculture and related services, each with 10.

At the bottom of the list, however, was medical and optical devices manufacture with a P/E of 1.8 and only one listed-company's tracked share. These were followed by telecommunications with 4 and multidisciplinary industrial firms and electricity, gas and steam procurement industries with 5.

The ratio's Q1 growth can be attributed to the market's rally in the third month's closing days. TSE's primary index TEDPIX jumped 13% overall in Q1 to set a new record of 108,872. The three-month growth was over half of what stocks had gained during the previous fiscal and its intensity promised sweet earnings to investors.

To have an idea about the scope of TSE-listed companies' P/E ratio, the accompanying table from Bloomberg shows trailing P/E ratios by country. The latter takes the current index level and divide by trailing 12-month earnings, excluding extraordinary items. The forward P/E ratios are the current index level divided by Bloomberg's estimate for earnings per share for the next four quarters. 

 

Tehran Stock Exchange Average P/E Tehran Stocks price to earnings ratio