Price Earning Ratio: A Valuation Metric That Can’t Be Ignored

Proshare

Wednesday, March 10, 2015 10:20AM / The Analyst

As a value investor, investing in stocks require serious background checks and the knowledge of a few valuation metrics as this remain the best way to analyze a stock.

Understanding a company’s fundamentals go a long way in helping  to ascertain the health of a potential company before investing, in as the analysis of such company’s fundamentals would help to know the ins and outs of the company's financial numbers and the ability to weed out the stocks that are trading for less than what they are worth.

Price–to-earnings ratio is one of the key metrics that can help one value its portfolio. It is one of the most widely used valuation metric employed by investors worldwide to determine the level of attractiveness of a stock.

By implication and based on what PE Ratio stands to measure, the following clarifications on PE Ratios will be succinct enough to explain the metric;

      A high P/E ratio means that investors are anticipating higher growth in the future.
      Companies that are losing money do not have a P/E ratio.
      For companies that operate in cyclical industries where earnings peak and then fall and then scale another peak; P/E will always look attractive in boom period.
      A low P/E does not mean that a stock is attractive just as a stock with high P/E ratio cannot completely be ignored either.

 
It is pertinent to state that PE ratio doesn't tell us the whole story on its own, and it is usually more useful to compare the P/E ratios of one company to other companies in the same industry or sector.

Therefore, we present below top three companies based on PE ratio in each sectors while we implore readers to click the link below to see the full list of all stocks and their PE ratios.

CLICK HERE TO VIEW CURRENT PE RATIOS OF ALL STOCKS ACROSS SECTORS



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