A company’s price-earnings (P/E) ratio is a valuation measurement of a company’s current share price compared to its earnings per share (EPS). While EPS is generally calculated from the last four quarters (trailing P/E), for the purposes of this post we are using expected earnings to determine a forward (projected) P/E. Think about earnings as = how many times you are going to wear an item. Therefore, the P/E ratio is:
___________Price of an Item____________
Est. Number of Times You are Going to Wear It
So why is this useful? It’s a quick and easy way to determine if a purchase is worth it. For example, a $300 pair of riding boots that you will wear, say 50 times, has a P/E of 6. Can you justify paying $6 each time you wear them? (Yes, so buy them already!) What about that gorgeous $150 pair of 5-inch ankle-wrap python platform stilettos that you find on sale and try to convince yourself that you “might wear, some day.” Yeah, a year later they’re still sitting in my closet with the price tag on the bottom. They may have been on sale, but not wearing them makes them a bad investment.
What determines a good/bad P/E? Aside from the obvious never wearing them = bad, you have to decide what’s appropriate for your financial goals (budget). Note, a lower P/E is not necessarily a better investment, it just means you’re getting more for your money based on a specific value meaurement. On that note, eDressme is having an amaaazing Labor Day Sale (up to 90% off!!!) and after some intense financial analysis, I’m concluding there are definitely a good number of dresses worth the investment. To make things easier, eDressme has organized the sale by price points ($20, $40, $50, $75, $99, and $149) so pick the one(s) that work for you but before you buy, make sure the P/E is worth it!