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What Does Ferrari N.V.'s (NYSE:RACE) P/E Ratio Tell You?

Simply Wall St

Today, we'll introduce the concept of the P/E ratio for those who are learning about investing. We'll apply a basic P/E ratio analysis to Ferrari N.V.'s (NYSE:RACE), to help you decide if the stock is worth further research. What is Ferrari's P/E ratio? Well, based on the last twelve months it is 40.39. That is equivalent to an earnings yield of about 2.5%.

Check out our latest analysis for Ferrari

How Do You Calculate Ferrari's P/E Ratio?

The formula for price to earnings is:


Or for Ferrari:

P/E of 40.39 = EUR154.70 (Note: this is the share price in the reporting currency, namely, EUR ) ÷ EUR3.83 (Based on the trailing twelve months to September 2019.)

Is A High P/E Ratio Good?

A higher P/E ratio means that investors are paying a higher price for each EUR1 of company earnings. That is not a good or a bad thing per se, but a high P/E does imply buyers are optimistic about the future.

Does Ferrari Have A Relatively High Or Low P/E For Its Industry?

We can get an indication of market expectations by looking at the P/E ratio. The image below shows that Ferrari has a higher P/E than the average (22.8) P/E for companies in the auto industry.

NYSE:RACE Price Estimation Relative to Market, January 16th 2020

Its relatively high P/E ratio indicates that Ferrari shareholders think it will perform better than other companies in its industry classification. Clearly the market expects growth, but it isn't guaranteed. So investors should always consider the P/E ratio alongside other factors, such as whether company directors have been buying shares.

How Growth Rates Impact P/E Ratios


Ferrari saw earnings per share decrease by 1.0% last year. But it has grown its earnings per share by 23% per year over the last five years.




Is Debt Impacting Ferrari's P/E?

Ferrari has net debt worth just 4.1% of its market capitalization. So it doesn't have as many options as it would with net cash, but its debt would not have much of an impact on its P/E ratio.

The Verdict On Ferrari's P/E Ratio

Ferrari has a P/E of 40.4. That's higher than the average in its market, which is 18.9. With some debt but no EPS growth last year, the market has high expectations of future profits.



