PE ratios computation & their usefulllness

The use of standards is vital in the assessment of stock values as investors constantly compare one investment with another. The price earnings ratio is the most popular measure investors use to compare and determine stocks values.
It is computed by dividing the price of a stock by the earnings per share. It allows investors to compare the value of one company with others in order to decide which ones are to be bought sold or held on to. Pass developments also inform seasoned investors as markets tend to have familiar recurring patterns over time. When the market moves markedly away from the norm it is usually time for investors to move. Nowhere is this truer than PE ratios. Investors should therefore keep track of historical price earnings ratios and compare them with the current ones. Ratios that have been high in the past and are now low, may indicate a potential increase in value for the stock or vice versa.
Use of the PEs| There is a tendency to look at the earnings per share of companies and apply a price earnings ratio to them to arrive at the value of a stock. This is one approach, but we should go further, with companies having hidden values the purist approach will miss the underlying value that could surface at any time. Astute investors will take into account the difference in treatment of accounting policies could have on earnings in assessing company value. It usually takes a longer time for such concepts to gain investor acceptance, but once widely accepted, the patient investor is usually rewarded.
In looking at good buying opportunities the crude measure is to buy those stocks with low PEs compared to the market or to stocks in the same sector.

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  1. […] investments gains its 22 percent. The stock traded on the junior market at $2.12 on Thursday at a PE ratio of 7.9 which is one of the lowest within the sector and therefore has room to record […]

  2. […] rates on Treasury bills are around 6 percent but that should fall in 2016 and will result in higher PE ratios as stocks become more attractive as an investment means than before. The local economy grew 1.5 […]

  3. […] not many person were attracted to last year when stocks were selling dirt-cheap. With the average PE of the market, around 5 times 2015 earnings, and with many blue chip stocks selling at no more than […]

  4. […] year to July 2015, from revenues of $824 million, with earnings per share of 48.8 cents, putting the PE ratio at 10. In 2014 revenues were $708 million and pretax profit at $51 million. The of listing of the […]

  5. […] 21 US cents, well above the low of 7.5 US cents it traded at in December 201. With the stock at a PE around 48 times ongoing earnings and well above any other stocks on the exchange, are investors […]