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?

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