📚 Stock Market Glossary
Clear, beginner-friendly explanations, real-world analogies, and visual formulas for key stock market terminology.
PER (Price-to-Earnings Ratio)
Valuation💡 Key Takeaway: A metric showing how high or low a stock price is relative to its annual net earnings.
Chicken Shop Analogy: Buying a chicken shop earning $10k/yr for $100k gives a PER of 10x. You recoup your principal in 10 years!
😎 10-Second Show-off Pro Tip for Friends!
😎 Show-off Tip: Tell your friends, 'Before jumping into tech stocks, check their PER! A PER over 50 requires insane earnings growth to justify the price!'
📖 Beginner-Friendly Explanation
STEP 1
Core Concept & Meaning
PER divides the current stock price by earnings per share (EPS).
Think of buying a bakery that makes $10,000 in net profit a year. If you buy the whole store for $100,000, it takes 10 years of profits to recoup your investment—giving a PER of 10!
STEP 2
Why It Matters & Mechanism
- Low PER (e.g. 5x): Stock price is cheap compared to current earnings.
- High PER (e.g. 40x): Stock price is premium, driven by high future growth expectations.
STEP 3
Practical Investment Tips & Pitfalls
Always compare PER with peers in the same industry!
📊 PER Formula & Valuation Standard
PER = Current Stock Price ($100) ÷ Earnings Per Share EPS ($10) = 10x
▶ PER = 10x means it takes 10 years of current earnings to recover initial investment
▶ Lower PER vs industry peers indicates potential undervaluation
⚖️ Key Comparison at a Glance
| Metric | A value stock (low PER) | B Technology growth stock (high PER) |
|---|---|---|
| Current stock price | 10,000 won | 100,000 won |
| Earnings per share | 2,000 won | 2,000 won |
| PER (Payback to Equity) | 5 times (5 years) | 50 times (50 years) |
| Market Assessment | Undervalued relative to earnings (stable) | Expect significant growth in the future (high volatility) |
⚔️ Don't Mix These Up! (Head-to-Head Comparison)
VSPBR (Price-to-Book Ratio)
View PBR→💡 Crucial Difference: PER values stock relative to annual net profit (earnings power), while PBR values stock relative to net asset liquidation book value.
VSPSR (Price-to-Sales Ratio)
View PSR→💡 Crucial Difference: PER looks at net bottom-line earnings, while PSR evaluates hyper-growth companies (even if currently unprofitable) based on top-line revenue.
📌 Practical Market & Real-World Example
If Samsung Electronics trades at a PER of 12 while global competitors trade at 20, Samsung may be relatively undervalued.