Author: Hoeem

Compiled by: Tim, PANews

What is the most overlooked metric in the crypto space? The P/E ratio (P/E). It can quickly help you determine whether a coin is overvalued or undervalued, whether a surge is imminent or hidden risks exist, whether it is a speculative potential stock or a bubble gathering place, and it helps you see through market sentiment.

This article will teach you how to analyze the price-to-earnings ratio, but first, you need to understand this concept like a professional.

Understanding P/E

1. Quickly identify overvalued and undervalued assets

P/E = Price per Share ÷ Earnings per Share

  • This indicates the price investors are willing to pay for every $1 of earnings.

  • High P/E = Market expects growth (but may be overvalued)

  • Low P/E = Possible value investment opportunity or warning signal

2. Compare protocols of the same type

Rank similar companies or cryptocurrencies by profit

  • Project A P/E 10, Project B P/E 30

  • Same industry sector, similar fundamentals? Then Company A may be undervalued.

3. Use P/E to gain insights into market sentiment

The P/E ratio is not just a numerical calculation, but also reflects market sentiment.

  • High P/E = Market optimism, speculative sentiment, and growth expectations

  • Low P/E = Fear, doubt, or market mispricing

4. Conduct scenario analysis on revenue

Original profit ≠ The truth

  • The P/E ratio helps to assess revenue in the context of the industry.

  • This indicates the market's valuation of every dollar of net profit.

5. Look for potential stocks or high-growth targets

  • Value investors highly favor low P/E stocks with strong fundamentals.

  • Growth investors chase high P/E and accelerated upside potential.

  • The key is understanding why the market is pricing it this way.

Additional Suggestions

The P/E ratio is like a speedometer; it can tell you how quickly the market digests expectations. But just as speed must be interpreted in context, so too must valuation be viewed in specific backgrounds.

How to quickly calculate the P/E ratio of cryptocurrencies

1. Visit DeFiLlama

Okay, I'm now on DeFiLlama, what's next?

2. Then check the 'Revenue' and 'Expenses' pages

Okay, I've found this place, what's the next step?

3. Select the filtering categories you want to compare

Got it, I can also compare them all, that seems fairer.

4. Click on '30-day revenue'

Yes, found it.

5. Take a screenshot of the data page

This operation is really simple

6. Go to a large language model website that can connect to the internet

7. Input the prompt + screenshot (copy and paste below)

Prompt

You are a professional cryptocurrency fundamental analyst.

Data Collection Process

  • Revenue - Extract the protocol's 30-day revenue (in USD) from the provided DeFiLlama screenshot. Use OCR technology; ignore any entries where revenue is empty or ≤0.

  • Market Cap vs Fully Diluted Valuation - Obtain real-time data from CoinGecko or CoinMarketCap (preferably using the same day's data). Match by token symbol; skip if any data is missing for the protocol.

  • Classification Focus - Only consider the DeFiLlama categories specified by the user (e.g., Decentralized Exchange DEX, Lending Protocol, Liquid Staking Token LST, Perpetual Contracts Perps, etc.).

  • Filtering and Screening

  • Exclusions for P/E ratios 1000 during filtering.

  • Calculate P/E = Market Cap ÷ (30-day revenue × 12).

  • Return the 20 projects with the lowest P/E ratios (i.e., the most 'undervalued').

  • For each project, simultaneously calculate the 'Revenue to Fully Diluted Valuation Ratio' = (30-day revenue ÷ FDV) × 100%.

  • Output: Generate a neat Markdown table sorted by ascending P/E ratio, and additionally add a header displaying the average P/E ratio and average revenue to fully diluted valuation ratio of the final list.

  • Abbreviate numbers to K/M/B format for better readability.

Column Settings:

1. Protocol Name

2. Token Symbol

3. P/E

4. 30-day Revenue (USD)

5. Circulating Market Cap (USD)

6. Fully Diluted Market Cap (USD)

7. Associated Chain

8. Brief Introduction

9. Revenue to Fully Diluted Valuation Ratio (%)

Quality Check, ensure:

1. Revenue and Fully Diluted Valuation are presented simultaneously.

2. Correctly according to DeFiLlama's classification labels.

3. The current data is the latest (data fetched from CoinGecko or CoinMarketCap updated within the last 48 hours).

4. The table is easy to browse, with no missing values.

Objective: To help cryptocurrency investors quickly identify tokens with potential price deviations in selected tracks through core metrics (P/E ratio and revenue/fully diluted valuation ratio).

Example:

It's also important to compare circulating market cap with fully diluted valuation while paying attention to any recent token unlocks.

So, alright, now you understand how to use the P/E ratio, and you know how to find the P/E ratio.