Ask Colin

Why are PE Ratios different in different sources?

The detailed question was:

I’m new to share trading and read your book and also signed up for access to the information on your website.

I did about 2 years of Forex trading, but didn’t really make any progress and was lucky to only have lost $400 over that period (by having a trading plan). 

It does make sense what you have written in your book and based on that I’m now in the process of creating my own share trading plan to find out if I can make it work with shares. 

Quick question about the market scans, the P/E Ratio listed  in the TA My Plan 52w, is that based on the calculation linked with the bond rate as you mentioned in your book?

It looks like they are different than other sources and I just would like to understand why. 

For example I had a look at IAG, their P/E Ratio according to my broker NABtrade is 11.82 (same as Commsec), but in the market scan it’s 14. Others were showing larger differences.

 

There are articles about PE ratios in the Free Newsletter archive on the website. There are also over 30 questions and answers on PE ratios in Ask Colin on the website.

 

There are a number of different definitions that can be used for PE ratios. This can lead to different sources showing different ratio multiples.

 

Another problem is that different sources take varying lengths of time to update their ratios because of the sheer volume of work during reporting seasons.

 

The ratios used in the scans on my website are those in my charting software. Please read the warning about relying on these ratios on the Explanations spreadsheet. The scans are a service for members who do not have scanning software and should never be used as a basis for decisions to invest real money without thorough verification.

 

The scans are useful as a first cut to reduce over 2000 stocks to a manageable list. However, you must then use ratios from a source for which you understand the definition used.

 

Finally, if you then decide to act on a ratio, you need to be sure it is up to date, so it is wise to make your own calculation from the company accounts.

 

In my own investment decision I  use ratios provided by Stock Doctor, whose definition I understand and it is easy to check their ratio is up to date. Unfortunately I am not able to provide those ratios in the scans for legal reasons.

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