Earnings Challenge E3｜Unveiling the answers

Company A may appear to be cheapest stock among three companies according to the list above. Since this is trailing P/E, the future expectation of the financial performance of the company A have been excluded from the calculation. This stock may appear cheap now if we simply compare the current share price to the last year Aug 2021 share price without taking into account current and future economic conditions. The aggressive of US Fed monetary policy will eventually slow down the US economy or may lead to economic recession. I think we should not expect the growth stock like Align Technology continue to grow like past as we are entering into new economic phase. One of the main problem for Align Technology is that their main product is considering discretionary health spending, this means that consumer tends to spend less or cut back when the economic is going to turn bad. So I still won't give it a buy now even the current PE of Align Technology is at 26.

The biggest limitation of the P/E ratio: It tells investors nothing about the company's EPS growth status. If the company is growing quickly, you will be buying it even it had a high P/E ratio, knowing that growth in EPS will bring the P/E back down to a lower level. If it isn't growing quickly, you might look for a stock with a lower P/E ratio. It is often difficult to tell if a high P/E multiple is the result of expected growth or if the stock is simply overvalued. A P/E ratio, even one calculated using a forward earnings estimate, doesn't always tell you whether or not the P/E is appropriate to the company's forecasted growth rate. So, to address this limitation, we should turn to another ratio, the PEG ratio.

The two contact lense companies here, Alcon & CooperVision, have quite different P/E ratios, although this is highly dependent on where you look. While I found the same numbers Moomoo gives in my research for Align and CooperVision, every site seemed to have different numbers for Alcon, ranging from around 23 - 71. That’s a wild fluctuation, and I’m not sure what to make of it. At any rate, the industry average for medical instruments is listed on several sites as around 25. Using only P/E ratios, this would either make Alcon a better investment than CooperVision, or significantly worse, depending on which numbers you trust.