P/E Ratio

The P/E ratio, or price-to-earnings ratio, is a widely used metric to evaluate the valuation of a stock. It measures a company's current share price relative to its per-share earnings.
The P/E ratio indicates how much investors are willing to pay per dollar of earnings. A higher P/E ratio might suggest that the market expects future growth in earnings.
A lower P/E might indicate that the stock is undervalued or that the company is experiencing difficulties.

$\mathrm{P/E\; ratio}=\frac{\mathrm{Market\; Value\; per\; Share}}{\mathrm{Earnings\; per\; Share\; (EPS)}}$

Let's calculate the P/E Ratio for ASML Holding for the year 2023. First we calculate the Annual Earnings per Share (EPS) for 2023.

Net Income (Earnings) for 2023: $8.484.149.000
The number of shares outstanding for 2023: 394.000.000

$\mathrm{Annual\; EPS\; for\; 2023}=\frac{\mathrm{8.484.149.000}}{\mathrm{394.000.000}}=\mathrm{\$21.53}$

The year close price for ASML Holding in 2023 was: $754. We can now calculate the P/E Ratio as:

$\mathrm{P/E\; ratio\; 2023}=\frac{\mathrm{\$754}}{\mathrm{\$21.53}}=35$

The notion of "good" and "bad" P/E ratios can vary significantly depending on the industry, economic environment, and individual company circumstances. The primary limitation of the P/E ratio is that it does not account for the company's growth rate. A company with a high P/E ratio might be justified if high growth rates are expected in the future.

PEG Ratio

The PEG ratio refines the P/E ratio by incorporating the earnings growth rate into the evaluation.

$\mathrm{PEG\; ratio}=\frac{\mathrm{P/E\; Ratio}}{\mathrm{Annual\; EPS\; growth}}$

The PEG ratio provides a more nuanced view by considering the expected growth rates of earnings. This ratio is particularly useful in comparing companies with different growth rates and can help in determining if a stock's price is aligned with its earnings growth potential.
A PEG ratio of 1 is typically considered to indicate that a stock is valued appropriately relative to its growth expectations. A PEG ratio less than 1 might suggest that a stock is undervalued given its growth prospects, whereas a PEG ratio greater than 1 might indicate a stock is overvalued relative to its expected earnings growth.