Now, let me tell you about something called the P/E Ratio, which folks on Wall Street act like is the gospel truth for picking stocks, though it ain’t quite that simple but a good starting point..
What in Tarnation is a P/E Ratio?
Picture this: You got a lemonade stand, and each cup you sell makes you a dollar in profit. Now, imagine someone wants to buy a share in your stand—meaning they want a piece of your lemonade fortune. If they offer you 10 bucks for every dollar your stand earns each year, your Price-to-Earnings (P/E) Ratio would be 10. Simple enough, right? Just take the price of the stock (what folks are paying) and divide it by how much money the business actually makes per share (earnings per share, or EPS).
Why Do People Care?
- Figuring Out a Good Deal: If your lemonade stand’s P/E is too high—say 50 bucks per dollar earned—some folks might say it’s too expensive. If it’s real low—like 5 bucks per dollar earned—people might think it’s a bargain, or maybe that something’s wrong with your lemonade.
- Guessing the Future: Sometimes, a high P/E means folks expect your stand to blow up into a full-on lemonade empire. Other times, a low P/E means people think your lemonade is about to get soured by a bad batch of lemons.
Comparing Apples to Lemons
- Industry Matters: If your buddy runs an ice cream shop, his P/E might be way higher because people love ice cream more than lemonade (hard to believe, I know). So, it ain’t fair to compare your P/E to his.
- High vs. Low: If your lemonade stand’s P/E is way higher than other lemonade stands, you might be overcharging, or maybe you got a secret lemonade recipe people believe in. If it’s lower, folks might think your stand is about to fold.
The Two Flavors of P/E
- Trailing P/E: Looks at what you earned last year. That’s like a coach picking a team based on last season’s games.
- Forward P/E: Uses guesses about what you’ll make next year. That’s like betting on a horse before it runs.
When the Math Goes Haywire
If your lemonade stand loses money, P/E doesn’t work. You can’t divide by zero, and if you try, you might break a calculator or make a math teacher faint. In that case, folks gotta look at other numbers to judge if your stand is worth anything.
The Catch
- Tricky Numbers: P/E doesn’t tell you if your stand is drowning in debt or paying out big lemonade dividends.
- Sneaky Tricks: Some fancy accountants can make earnings look better than they really are, so a stock might look cheap when it’s actually a bad deal.
- Remember the actual numbers would have changed since I made this post, So your mileage will vary.
The Moral of the Story
P/E is a handy little number, but it ain’t the whole picture. If you’re picking stocks like you pick the ripest lemons, you gotta look at the whole tree, not just one fruit. So next time you hear folks arguing about whether a stock is “too expensive” or “a bargain,” just ask ‘em: “What’s in the lemonade?”
In a nutshell, companies like Tesla, Amazon, and NVIDIA often sport higher P/E ratios because investors believe they’re poised for significant growth. On the other hand, firms like Exxon Mobil usually have lower P/E ratios, reflecting their steady but less spectacular earnings.
Tesla (118.2 P/E) – The Wild Mustang
Tesla’s got a P/E ratio higher than a cat up a tree. At 118.2, that means folks are willing to pay $118 for every measly $1 Tesla actually earns. Why? ‘Cause they figure Tesla ain’t just selling cars—it’s selling the future. Electric cars, AI, robots, maybe even moon buggies. But the higher the P/E, the riskier the bet. If the future don’t pan out like folks expect, that stock price might drop faster than a greased pig on a waterslide.
Exxon Mobil (13.65 P/E) – The Reliable Workhorse
Exxon’s sitting at 13.65, which is about as steady as a rock. That means investors are paying $13 for every $1 Exxon makes, which tells us people see it as dependable, but not exciting. Oil companies don’t promise big future growth like Tesla, but they make good money today. Folks expect Exxon to keep pulling oil outta the ground and raking in cash—just not at lightning speed. It’s like that old truck in the barn: not flashy, but it’ll get the job done.
Amazon (50.94 P/E) – The Ever-Growing Beast
Amazon’s sitting at 50.94, which is pretty high but not quite Tesla-level crazy. See, Amazon ain’t just books and packages anymore—it’s running cloud computing, AI, advertising, and who knows what else. People are betting it’s gonna keep expanding, finding new ways to make money. But if profits don’t keep up with expectations, investors might start questioning why they paid such a high price.
NVIDIA (40.3 P/E) – The Gold Mine of Chips
Now, 40.3 is a pretty high P/E, but it makes sense. NVIDIA ain’t just selling gaming graphics cards anymore; they’re sitting on the gold mine of AI chips, data centers, and supercomputers. Investors are thinking, “This company is gonna own the future of artificial intelligence.” But like Amazon, that big P/E comes with big expectations—if NVIDIA stumbles, that stock price could tumble too.
What’s the Takeaway?
- Tesla’s P/E is sky-high ‘cause investors see it as a moonshot. Big rewards, big risks.
- Exxon’s P/E is low ‘cause it’s steady and predictable, not a wild growth story.
- Amazon and NVIDIA are in the middle, still growing fast but not quite in “bet-the-farm” territory like Tesla.
So, if you’re investing, ask yourself: Are you looking for a wild ride, steady cash, or something in between? ‘Cause these P/E ratios tell a whole story—if you know how to listen. Now, if you’re asking which is the best deal, you’re really asking, “Am I getting my money’s worth, or am I paying too much for a dream?”
Let’s Break It Down:
- Tesla (P/E 118.2) – You’re paying $118 for every $1 it earns. That’s like buying a lemonade stand that barely turns a profit but folks think will someday rule the world. Maybe it will, maybe it won’t. High risk, high reward.
- Exxon Mobil (P/E 13.65) – A P/E this low is like a slow but steady farmhorse. It’s earning real money right now, not just promising big things down the road. It might not grow fast, but it pays solid dividends and makes money today. Lower risk, but not exciting.
- Amazon (P/E 50.94) – Amazon’s kinda like a middle ground between Tesla and Exxon. It’s got proven earnings but also future growth potential. That P/E isn’t cheap, but it’s not Tesla-level either. A good mix of risk and reward.
- NVIDIA (P/E 40.3) – This is a growth stock, but at least its earnings are more solid than Tesla’s. AI and data centers are booming, so people expect big things. The question is: Are you late to the party?
So, Which One’s the Best Deal?
👉 Best for Safety & Reliable Earnings? Exxon Mobil (cheapest P/E, stable money)
👉 Best for Growth With Less Risk? NVIDIA (lower P/E than Amazon, strong AI future)
👉 Best for Balanced Growth & Stability? Amazon (proven business, still growing)
👉 Biggest Gamble for the Future? Tesla (sky-high P/E, could be the next Apple—or the next overhyped bet)
Final Thought:
- If you want safe, steady money, Exxon is the clear winner.
- If you want fast growth but still some stability, NVIDIA is a solid bet.
- If you’re willing to gamble on the future, Tesla is the biggest swing—but also the biggest risk.
The best deal depends on how much risk you can handle. If you ain’t comfortable betting the farm, stick with Exxon or NVIDIA. If you wanna roll the dice, Tesla’s got the highest stakes.
EXTRA CREDIT
Now, if you see a company with a negative P/E or no P/E at all, that means something real important: it ain’t making a profit.
What Does a Negative or No P/E Mean?
The P/E ratio is price divided by earnings, but if a company loses money, well… you can’t divide by a negative number and get a useful answer. That’s why these companies either show a negative P/E or no P/E at all.
Think of it like a lemonade stand that keeps losing money every month. You could still buy it, sure—but instead of buying earnings, you’re buying hope. Hope that someday, that lemonade stand figures out how to make a profit.
Should You Invest in a Company With No P/E?
It depends. Here’s why:
- Startup or Growth Phase?
- Some companies, like Amazon in its early days, ran at a loss for years. They spent every dollar (and then some) expanding, building warehouses, and growing their business. Investors bet on the future, and it worked out.
- If a company is investing in growth, it might be worth the risk—but only if it has a real path to profits.
- Sinking Ship?
- Some companies lose money because they’re dying. Their business model is busted, customers are leaving, and no amount of “future growth” will save them.
- If a company has been losing money for years with no sign of fixing it, stay away unless you like burning cash.
- Industry Matters
- Tech startups and AI companies often have no P/E because they’re reinvesting everything into R&D.
- Old-school companies like retailers and energy firms? If they got a negative P/E, it’s a warning sign they’re in trouble.
How to Tell If a No P/E Stock Is Worth It
- Look at Revenue Growth – Is it increasing fast, or is the company stalling?
- Check Debt Levels – Is it drowning in debt, or does it have cash to keep going?
- Future Profit Potential – Does it have a real shot at making money soon, or is it just making excuses?
Bottom Line
🚨 A negative P/E isn’t always bad—but it’s a warning.
- If it’s a fast-growing company investing in its future, it might be a good bet.
- If it’s losing money and has no real plan, it’s just a money pit.
So, before you invest in a company with no P/E, ask yourself: Are you betting on a young Amazon—or a sinking Titanic?
