The Determinants of Price Earning Ratio: Evidence from Indonesia
Authors: Neldi Mondra , Hady Hamdy , Elfiswandi  , Lusiana  
Published: August 2023

Purpose: This paper aims to examine the determinants of the Price Earning Ratio of LQ45 Companies listed on the Indonesia Stock Exchange 2016-2021.

 

Theoretical framework: Price Earning Ratio (PER) is a comparison between market price per share and earnings per share, PER is the ratio used by investors to value a company's shares, Price Earning Ratio (PER ) as a way of valuation to find out the true value of shares of a company. This PER is used to analyze stock prices that show unreasonable prices, (Fahmi, 2016) . Meanwhile, (Wahyudiono, 2014) Price Earning Ratio (PER) is a ratio that shows the comparison between the price of shares in the primary market offered compared to the income received.

 

Design/Methodology/Approach: Sampling in this study was carried out by purposive sampling, meaning that the sample selection method was selected based on judgment sampling, which means the selection of samples was not random, the information obtained with certain considerations. Using Panel Data regression to determine the determinants of the Price Earning Ratio in LQ45 companies in Indonesia from 2016 to 2021.

 

Findings: This study reveals that the five determinants of the Price Earning Ratio (Debt to Equity Ratio, Return On Assets, Firm Size, Sales, and Dividend) have a significant effect on the price earning ratio. The Debt to Equity Ratio has a positive correlation with the Price Earning Ratio, while Return On Assets, Firm Size, Sales and Dividend has a negative correlation with the Price Earning Ratio. In addition, one other variable, the current ratio, has no significant effect on the Price Earning ratio. The shares of SMGR, ASII, HMSP, TLKM, BBCA are the most expensive shares when viewed from the ratio of share prices to earnings, and shares of TKIM, ITMG, INKP, ADRO, PGAS are the cheapest share prices when viewed from the ratio of share prices to company profits period 2016-2021

 

Research, practical & social implications: where the findings of this study prove that ROA, Sales, and Dividend have a significant negative effect on PER, meaning that if a company wants a share price ratio (PER) value that is attractive to investors (the lower the PER the more attractive it is to investors), then the company must increase profits, sales growth and the value of the company's cash dividends. Furthermore, for investors, the findings of this study prove that SMGR, ASII, HMSP, TLKM, BBCA shares are the most expensive stock prices when viewed from the ratio of share price to earnings earned during the 2016-2021 period. And TKIM, ITMG, INKP, ADRO, PGAS shares are the cheapest share prices when viewed from the ratio of share prices to company profits for the 2016-2021 period. So this will be a consideration for investors in choosing the best stock portfolio for stock investment on the Exchange.

Originality/Value: LQ45 companies listed on the Indonesia Stock Exchange for the period 2016-2021 were recruited as the research sample. However, the controversy and inconsistency of the results is debatable.