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How Monsanto’s Stock Has Tracked Its Historical Price-to-Earnings

The price-to-earnings ratio is a popular multiple investors use to determine the value of their investments in companies such as Monsanto (MON).

By Adam Jones

Dec. 30 2016, Published 1:28 p.m. ET

Valuation multiple

Valuation multiples are critical, as they’re tools investors (MOO) use to determine the prices they should pay for stocks. The PE (price-to-earnings) ratio is one of the more popular multiples investors use to determine the value of their investments in companies such as Monsanto (MON), Syngenta (SYT), FMC (FMC), and Dow Chemical (DOW).

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Historical PE and stock trend

In the graph above, we’ve plotted Monsanto’s PE multiple against its stock price movement indexed to 100 since October 2003. The PE used is forward PE, which is calculated by dividing a stock’s current price by its next 12 months’ worth of earnings as estimated by Wall Street analysts.

Monsanto’s PE multiple took a dive in 2008 following the financial crisis. Let’s see how it’s traded since.

PE levels

Monsanto’s forward PE since 2009 has ranged from a low of 15x to a high of 25x. More recently, the company has been trading closer to its high point of 25x, and it’s rallied recently on the news of a potential merger with Bayer.

Monsanto continues to struggle, as the farm economy has been under pressure due to bumper crop season. Farmers’ profitabilities, which have been affected by lower crop prices, have affected the valuations of companies in the agribusiness space.

Next, let’s compare Monsanto’s PE to those of its peers.