PE ratio by industry

When it comes to analyzing and evaluating stocks, one of the most commonly used metrics is the price-to-earnings (P/E) ratio. The PE ratio helps investors assess a stock's value relative to its earnings. However, the average PE ratio can vary significantly between different industry sectors.

First, let's define the P/E ratio. The P/E ratio is calculated by dividing a company's stock price by its earnings per share (EPS).

Price to Earnings Ratio = Stock Price / TTM Earnings Per Share (EPS)

This ratio shows how much investors are willing to pay for each dollar of earnings the company generates. A high P/E ratio indicates that investors expect strong future growth, while a low P/E ratio suggests investors are less optimistic about the company's future prospects.

Average P/E Ratio by Industry

The average P/E ratio varies significantly by industry. Here is a table showing average PE ratios by industries in the US as of Feb 2024:

Industry Average P/E ratio Number of companies
Advertising Agencies 22.34 22
Aerospace & Defense 28.04 50
Agricultural Inputs 27.67 11
Airlines 15.3 13
Apparel Manufacturing 17.35 17
Apparel Retail 17.67 29
Asset Management 13.12 73
Auto Manufacturers 18.43 17
Auto Parts 19.6 46
Auto & Truck Dealerships 10.2 14
Banks - Diversified 11.03 6
Banks - Regional 10.2 279
Beverages - Non-Alcoholic 25.78 9
Biotechnology 16.56 518
Broadcasting 16.97 16
Building Materials 23.42 7
Building Products & Equipment 23.2 31
Business Equipment & Supplies 31.01 7
Capital Markets 17.62 33
Chemicals 17.31 17
Communication Equipment 29.64 53
Computer Hardware 31.01 28
Consulting Services 30.97 16
Credit Services 11.94 45
Department Stores 17.15 5
Diagnostics & Research 36 67
Discount Stores 26.98 9
Drug Manufacturers - General 32.61 12
Drug Manufacturers - Specialty & Generic 24.33 50
Education & Training Services 26.14 16
Electrical Equipment & Parts 23.27 42
Electronic Components 24.74 30
Electronics & Computer Distribution 14.21 6
Engineering & Construction 28.34 30
Entertainment 44.31 37
Farm & Heavy Construction Machinery 19.77 22
Farm Products 12.25 18
Financial Data & Stock Exchanges 27.28 10
Food Distribution 19.52 9
Footwear & Accessories 20.97 11
Furnishings, Fixtures & Appliances 17.35 19
Gambling 20.82 11
Gold 28.21 27
Grocery Stores 16.48 10
Healthcare Plans 18.52 12
Health Information Services 50.23 33
Home Improvement Retail 25.17 7
Household & Personal Products 26.64 24
Industrial Distribution 21.89 17
Information Technology Services 31.57 54
Insurance Brokers 26.75 12
Insurance - Diversified 11.71 11
Insurance - Life 11.99 16
Insurance - Property & Casualty 14.95 36
Insurance - Reinsurance 6.61 7
Insurance - Specialty 12.57 16
Integrated Freight & Logistics 18.62 15
Internet Content & Information 22.16 36
Internet Retail 23.42 22
Leisure 23.98 25
Lodging 25.05 9
Marine Shipping 7.77 24
Medical Care Facilities 27.17 39
Medical Devices 33.36 103
Medical Distribution 25.63 7
Medical Instruments & Supplies 39.66 45
Metal Fabrication 21.57 13
Mortgage Finance 15.51 17
Oil & Gas Drilling 8.82 6
Oil & Gas E&P 8.64 65
Oil & Gas Equipment & Services 13.33 44
Oil & Gas Integrated 9.21 7
Oil & Gas Midstream 11.42 37
Oil & Gas Refining & Marketing 11.05 18
Other Industrial Metals & Mining 20.13 15
Packaged Foods 22.14 42
Packaging & Containers 20.74 22
Personal Services 16.16 11
Publishing 42.18 7
Railroads 23.49 8
Real Estate - Development 8.3 10
Real Estate Services 23.51 24
Recreational Vehicles 16.06 15
REIT - Diversified 25.48 17
REIT - Healthcare Facilities 32.06 16
REIT - Hotel & Motel 23.76 15
REIT - Industrial 30.81 16
REIT - Mortgage 16.32 35
REIT - Office 33.67 24
REIT - Residential 33.56 19
REIT - Retail 28.64 21
REIT - Specialty 32.06 15
Rental & Leasing Services 17.47 20
Residential Construction 10.32 21
Resorts & Casinos 18.09 18
Restaurants 19.32 41
Scientific & Technical Instruments 35.68 24
Security & Protection Services 24.65 14
Semiconductor Equipment & Materials 33.52 26
Semiconductors 33.19 64
Software - Application 46.21 192
Software - Infrastructure 38.5 89
Solar 20.62 13
Specialty Business Services 25.86 26
Specialty Chemicals 26.75 46
Specialty Industrial Machinery 27.67 73
Specialty Retail 18.84 42
Staffing & Employment Services 22.91 23
Steel 14.3 15
Telecom Services 40.64 33
Thermal Coal 6.42 9
Tobacco 15.48 6
Tools & Accessories 27.81 11
Travel Services 22.49 14
Trucking 26.82 12
Utilities - Diversified 15.33 15
Utilities - Regulated Electric 17.32 25
Utilities - Regulated Gas 15.58 14
Utilities - Regulated Water 22.59 12
Utilities - Renewable 20.17 11

As shown in the table, the Health Information Services industry has the highest average P/E ratio of 50.23, followed by Software - Application at 46.21. In contrast, the Thermal Coal industry has the lowest average P/E ratio of 6.42, followed by the Insurance - Reinsurance industry at 6.61. This variation is due to several factors, including industry-specific risks, growth potential, and investor sentiment.

Industries with highest PE ratio

Industries with the highest PE ratio are shown in the following chart and table. You can further filter the industries by sector in the chart below, so you can see a breakdown of the top industries with the highest PE ratio for every sector.

Industry Average P/E ratio Number of companies
Health Information Services 50.23 33
Software - Application 46.21 192
Entertainment 44.31 37
Publishing 42.18 7
Telecom Services 40.64 33
Medical Instruments & Supplies 39.66 45
Software - Infrastructure 38.5 89
Diagnostics & Research 36 67
Scientific & Technical Instruments 35.68 24
REIT - Office 33.67 24

Industries with lowest PE ratio

Industries with the lowest PE ratio are presented in the following chart and table. Within the chart below, you can also refine the industries by sector, allowing you to observe a breakdown of the top industries with the lowest PE ratio in each sector.

Industry Average P/E ratio Number of companies
Thermal Coal 6.42 9
Insurance - Reinsurance 6.61 7
Marine Shipping 7.77 24
Real Estate - Development 8.3 10
Oil & Gas E&P 8.64 65
Oil & Gas Drilling 8.82 6
Oil & Gas Integrated 9.21 7
Auto & Truck Dealerships 10.2 14
Banks - Regional 10.2 279
Residential Construction 10.32 21

It's important to compare the P/E ratio of a company to the average P/E ratio for its industry. If a company's P/E ratio is higher than the industry average, it may indicate that investors have high expectations for the company's growth potential. Conversely, if a company's P/E ratio is lower than the industry average, it may suggest that investors are less optimistic about the company's future prospects and therefore are willing to pay lower multiple for it.

Industry Sectors and Characteristics

Some industries tend to have higher P/E ratios than others because they are expected to have higher growth potential and future earnings. On the other hand, industries with lower growth potential or with more mature companies tend to have lower P/E ratios.

There are several industry sectors, each with unique characteristics that impact the P/E ratio. For example:

  • Technology companies often have higher P/E ratios due to the potential for rapid growth and innovation.
  • Healthcare companies often have lower P/E ratios due to regulatory risks and high research and development costs.
  • Consumer goods companies typically have moderate P/E ratios due to the steady demand for their products.

Other factors that can impact P/E ratios include interest rates, inflation, and macroeconomic trends. High interest rates or inflation can reduce the value of future earnings, causing P/E ratios to decline. Economic recessions or other negative macroeconomic events can also impact P/E ratios across industries.

Types of PE ratio

The P/E ratio is a relative comparison between a company's current stock price and its earnings per share (EPS). There are different types of P/E ratios that can be used depending on the timeline of stock price consideration. The first type is the forward P/E ratio, which compares current earnings to future earnings by estimating what the future earnings might look like.

The second type is the trailing twelve months P/E ratio, which uses EPS data from the past 12 months to judge a company's current performance.

The third type is the absolute P/E ratio, which uses current stock price and data from both the past 12 months and future projections.

Lastly, the relative P/E ratio compares the absolute P/E ratio to P/E values of the past, using a time frame set by investors.

It's important to note that while each type of P/E ratio has its own strengths and weaknesses, investors should consider multiple factors beyond P/E ratios when making investment decisions.

Limitations of P/E Ratio

While the P/E ratio is a useful metric, it has some limitations. It's important to note that P/E ratios should not be used as the sole factor when making investment decisions. Investors should consider a range of factors, such as a company's financial health, management team, growth potential, and industry trends, when assessing the value of a company and make more informed investment decisions.