To do so, they employ various ratios and metrics. Among the most favorable is the Price/Earnings Ratio (P/E ratio).
The P/E ratio is derived by dividing the share price by the earnings per share, which can be either historical or anticipated in the future.
This ratio provides insight into the amount an investor is willing to pay for each dollar of a company’s earnings.
Essentially, it quantifies the number of years needed to recoup the investment in shares through the company’s profits.
The P/E ratio can be categorized as follows:
Currently, the S&P 500 is trading at more than 20 times its anticipated earnings, surpassing both its 5-year average (18.9) and 10-year average (17.7).
Furthermore, 8 out of the 11 sectors are trading above their 25-year average.
However, our focus today is on stocks that are trading at over 70 times their 12-month expected earnings.
It’s crucial to note that a P/E ratio exceeding 20 suggests investors are paying significantly more P/E ratio share than the company is earning.
This could be due to high expectations for future growth and earnings, or it may indicate that the company is significantly overvalued.
So here are the 4 stocks considered overvalued by the market:
Digital Realty Trust (NYSE:DLR) is an Austin-based U.S. company specializing in data center management.
It trades at 135 times its 12-month earnings.
It will present its accounts on April 25. Looking ahead to 2024, EPS (earnings P/E ratio share) is expected to increase by +61.4% and revenue by +2.9%.
Source: InvestingPro
Its dividend yield is +3.58%.
Source: InvestingPro
Its shares are up +31.02% in the last 12 months and +1.18% in the last 3 months.
It trades at 136, 22 and the market already sees very little potential for it, specifically at $140.16.
Source: InvestingPro
Illumina (NASDAQ:ILMN) is an American company founded in April 1998 and based in San Diego, California, which develops, manufactures, and markets systems for the analysis of genetic variation and biological function.
It trades at 125 times its 12-month earnings.
It will report its numbers on April 23. Looking ahead to 2024, EPS (earnings P/E ratio share) is expected to increase +4.9% and revenue +0.7%.
Source: InvestingPro
Its shares are down -29.30% in the last 12 months and up +46.90% in the last 3 months.
The market still sees some room for it this year, specifically from the current $143.41 to $157.78.
Source: InvestingPro
Insulet (NASDAQ:PODD) is a company that develops, manufactures, and sells insulin delivery systems for people with diabetes. It was incorporated in 2000 and is based in Acton, Massachusetts.
It trades at 85 times its 12-month earnings.
On February 22 it presents its earnings report with expectations of +47.53% EPS growth. Looking ahead to 2024, EPS (earnings P/E ratio share) is expected to increase by +26.7% and revenue by +19.9%.
Source: InvestingPro
It has 22 ratings, of which 18 are buy, 4 are hold and none are sell.
Its shares are down -34.63% in the last 12 months and up +5.38% in the last 3 months.
It trades at $191.01 and the market sees interesting potential for it at $234.52.
Source: InvestingPro
DexCom (NASDAQ:DXCM) is a company that develops, manufactures, produces, and distributes continuous glucose monitoring systems for diabetes management.
It operates internationally and is headquartered in San Diego, California. It was founded in 1999.
It trades at 73 times its 12-month earnings.
On April 25 it will report its accounts with expectations of an EPS increase of +15.16%. Looking ahead to 2024, EPS (earnings P/E ratio share) is expected to increase by +14.4% and revenue by +19.4%.
Source: InvestingPro
Its shares are up +2.67% in the last 12 months and +7.42% in the last 3 months.
It trades at $117.05 and the market gives it a 12-month potential at $146.39.
Source: InvestingPro
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Disclaimer: The author does not own any of these shares. This content, which is prepared for purely educational purposes, cannot be considered as investment advice.
This article was originally published here.
