How deeply does Build a Robo-Advisor with Python (From Scratch) cover price-to-earnings ratio?

Defines standard P/E through its earnings input, contrasts CAPE, and applies the adjusted measure in a regression workflow.

Price-to-earnings ratio

As explained in Build a Robo-Advisor with Python (From Scratch)

A valuation ratio comparing a stock's market price with its earnings per share.

The price-to-earnings ratio (P/E) compares a stock’s market price with its earnings per share. It measures valuation using the most recent earnings. section 3.1.3

P/E can help adjust historical stock returns when valuation changes distort comparisons across periods. A rising valuation ratio can contribute to returns that historical averages may not represent sustainably. section 3.1.3

Distinguish the standard ratio from its cyclically adjusted variant:

Standard P/E uses the most recent earnings. section 3.1.3
The CAPE ratio averages earnings over the prior 10 years and adjusts them for inflation, smoothing business-cycle fluctuations. section 3.1.3
Other valuation measures include the book-to-market ratio. section 3.1.3

Adjusting stock-return estimates

A historical-return analysis uses annual VFINX returns and CAPE data, computes percentage changes in CAPE, and regresses excess stock returns on those changes. section 3.1.3

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Investing for ProgrammersA price-to-earnings ratio is a valuation ratio comparing a company's share price with its earnings per share.

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Related concepts

cyclically adjusted price-to-earnings ratiocontrasts with · The cyclically adjusted price-to-earnings ratio is a valuation metric that divides an asset's price by its average inflation-adjusted earnings over the preceding ten years.
price/earnings-to-growth ratioused by · A price/earnings-to-growth ratio compares a company’s price-to-earnings ratio with its earnings growth rate.
earnings per sharemeasures · Earnings per share is a company’s net income attributable to common shareholders divided by its outstanding common shares.
financial ratiokind of · A financial ratio is a quantitative relationship between financial statement values used to evaluate financial condition, performance, or valuation.
stock share pricemeasures · A stock share price is the market value of one share of a publicly traded company or security at a particular time.
price-to-sales ratiomeasures · A price-to-sales ratio compares a company’s market value with its sales or revenue.

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