Choose ye this day...P/E vs P/B vs P/S

CFA Level II
#1

The principal competitors in an industry are located in the US, France, Japan and Brazil. The industry is currently operating at a cyclical low, with many companies recording losses. Which of the ff valuation ratios is most appropriate for comparing companies in the industry and WHY: A. P/E B. P/B C. P/S D. All of the above

#2

I would go with C, because it will suffer the least from international accounting differences. P/E is out if there are losses.

#3

C because its cyclical ??

#4

C no P/E b/c of negative earnings, no P/B due to varying international accounting practices

#5

B?

#6

Agree with NCStateHockey Another reason not to use P/B - differences in inflation rates of countries mentioned

#7

I tend to think C, but I’m going to throw in my vote for D just to be unique. D, could mean compare using all three methods.

#8

the only reason I am saying B is because being cyclycal low the earnings and sales are not representative on the other hand P/bv would be more ilustative if you make adjustments for inflation, accounting methods etc- which the question does not exclude

#9

C. P/S is good for cyclical companies, startups and mature companies. edit to add: P/B is distorted by differnt level of technology and inflation - Brazil stood out for me.

#10

I agree with B.

#11

I like B

#12

Hey Grace Grace, how about hooking us up with the answer?

#13

the answer is C check cfai text page 488 question 12

#14

On an unrelated but related note, p/s is an awful real life metric since it ignores profitability. I hate it.

#15

Very true caspian… but according to the book, the metric still does have a very high correlation to changes in price

#16

it also does not capture the different capital structures that, needless to mention, impacts significantly on a businesses sustainability…

#17

someone quoted S/EV at me the other day…