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What does P/E tell you?

The P/E gives you an idea of what the market is willing to pay for the company’s earnings.

The higher the P/E the more the market is willing to pay for the company’s earnings. Some investors read a high P/E as an overpriced stock and that may be the case, however it can also indicate the market has high hopes for this stock’s future and has bid up the price.

Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean this is a cheaper that the market has overlooked. Known as value stocks, many investors made their fortunes spotting these “diamonds in the rough” before the rest of the market discovered their true worth.

What is the “right” P/E to look for before picking the stock?
The FMCG stocks always carry high PE and stock prices keep on increasing. So in such companies the High PE ratio is bound to happen. Because consumption stocks in growing country are bound to be a higher valutions.

On the other side in infrastructure or in steel companies the PE ratio is low due to high capital requirement. So basically the decision of picking the stock on PE ratio requires additional knowledge and over all market experience and how sectors are performing. Or else you can write to us at support@daytradingshares.com to know more about any company

which you wish to invest
Secondly compare the PE ratio of stocks in the same sector and not in different sectors.
Understanding Price to Earnings Ratio (PE ratio)
Understanding Price to Earnings Ratio (PE ratio)

If there is one number that people look at than more any other it is the Price to Earnings Ratio (P/E).

The P/E is one of those numbers that investors throw around with great authority as if it told the whole story. Of course, it doesn’t tell the whole story (if it did, we wouldn’t need all the other numbers.)

The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis, although it is far from the only one you should consider.

You calculate the P/E by taking the share price and dividing it by the company’s EPS.

P/E = Stock Price / EPS

For example, a company with a share price of Rs 40 and an EPS of 8 would have a P/E of 5 (40 / 8 = 5).