How does one value stocks? A good indicator is the P/E ration which stands for the price-to-earnings ratio.
The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.
The formulae that is used is
Price Per Share/ Earnings Per Share = P/E Ratio
The p/e ratio is the price an investor is paying for $1 of a company’s earnings or profit. In other words, if a company is reporting basic or diluted earnings per share of $2 and the stock is selling for $20 per share, the p/e ratio is 10.
What tools do you use to value stocks?