Mary,
WE (Intel stockholders) determine P/E. We do it by setting the price we are willing to pay. If the prevailing marke was willing to pay $120 for Intel, the P/E would be 30. The market is not willing to pay this right now, it's only willing to pay $80, so the P/E is only 20. Why ? Forgetting all of the analytical answers that you will get, this is a mass psychology issue, a chicken-or-egg question. If people had historically paid a price resulting in a P/E of 30, they would likely continue doing so, but for two decades the historical P/E has been "20-ish", so, for now, and likely for some time to come, people won't pay more. All of the financial and analytical stuff is mostly fluff, it does not really explain anything.
If EVERY SINGLE INTEL STOCKHOLDER refused to sell his stock until he got a P/E of 30, the P/E would be 30, but this just will not happen. By the way, that still leaves the question of just what the "E" is -- the past twelve month's earnings, the estimated next twelve months earnings (which no one can know for sure to begin with), or something else. |
