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Is Live Ventures Incorporated’s (NASDAQ:LIVE) PE Ratio A Signal To Buy For Investors?

Becky Mayes

Live Ventures Incorporated (NASDAQ:LIVE) trades with a trailing P/E of 4x, which is lower than the industry average of 17.3x. While this makes LIVE appear like a great stock to buy, you might change your mind after I explain the assumptions behind the P/E ratio. In this article, I will break down what the P/E ratio is, how to interpret it and what to watch out for. See our latest analysis for Live Ventures

Breaking down the Price-Earnings ratio

NasdaqCM:LIVE PE PEG Gauge Mar 18th 18
NasdaqCM:LIVE PE PEG Gauge Mar 18th 18

The P/E ratio is one of many ratios used in relative valuation. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.

P/E Calculation for LIVE

Price-Earnings Ratio = Price per share ÷ Earnings per share

LIVE Price-Earnings Ratio = $12.74 ÷ $3.153 = 4x

On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. We want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as LIVE, such as size and country of operation. A common peer group is companies that exist in the same industry, which is what I use. At 4x, LIVE’s P/E is lower than its industry peers (17.3x). This implies that investors are undervaluing each dollar of LIVE’s earnings. As such, our analysis shows that LIVE represents an under-priced stock.

Assumptions to watch out for

While our conclusion might prompt you to buy LIVE immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to LIVE. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared higher growth firms with LIVE, then its P/E would naturally be lower since investors would reward its peers’ higher growth with a higher price. The second assumption that must hold true is that the stocks we are comparing LIVE to are fairly valued by the market. If this does not hold true, LIVE’s lower P/E ratio may be because firms in our peer group are overvalued by the market.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.