why should u pick a stock with a p/e below 15 ?

Question

what exactly in english is price to earnings?

Answer 1

P stand for stock price, E stand for earnings. The latter is the profit the company made divided by the total number of outstanding stock.
The higher it is the more expensive the stock is. You can also look at P/E as the number of years it will take before the profits have paid back for the stock price.

Using P/E or EPS as it is also called, all by itself is not a good idea.
Maybe a stock is cheap for a reason, or maybe it is not so cheap at all compared to other companies in the same sector. You also have to take care which value for E you use. Last years earnings? A prediction for next years earnings. Obviously it's not the same.

Answer 2

Price to earnings is the relationship between the stock's price and their annual earnings per share.

So a stock that makes $2/share and sells for $60 has a P/E of 30.

To answer the other question, you should pick a stock with a p/e below 15 only if you don't know any other way to select good stocks. The theory is if a stock has a low P/E, then it might be undervalued and eventually the stock market will realize this and the stock's price will increase.

Using P/E ratio is an "old" way to pick stocks used for generations since other data on companies were not as easily accessible. Nowadays, selecting stocks is a much more refined process where you might consider earnings, earnings growth, sales, insider trading, as well as a number of other attributes.

You might consider picking up How to make money in Stocks in good times and bad by William O'Neill who's CANSLIM method is very well known.

That'll help you get a good basic understanding of what makes a successful stock successful!

Hope that helps!

Answer 3

P/E is the ratio of price to earnings.

A stock with a lower P/E is by definition cheaper than a stock with a higher P/E. You get more earnings per dollar of share price.

However, that's not the whole story. The P/E ratio reflects how the market feels about the growth potential for this stock. A high P/E ratio means that the market, rightly or wrongly, has high expectations for this stock. You also have to consider the industry. Internet and software companies tend to enjoy much higher p/e's than oil, retail, and homebuilders. So you have to compare the P/E to comparable companies to know if the p/e is "high" or "low."

Personally, my only investing rule about p/e ratios is don't buy a stock with a p/e over 50, and be very cautious about any stock with a p/e over 40. A P/E over 50 tends to reflect unrealistic growth expectations, and at the slightest hint of trouble, the price will plunge. But many of my best stock picks have had p/e's of 30 and over. And if I buy a stock with a p/e under 40, and it subsequently goes over 50, I don't sell unless there is some other reason why I think the stock might go down.

Answer 4

price divided by earnings per share is p e ratio
so you shd look into the overall pe of the industry and stock market in toto to invest
another school of thought says that if the pe is high, the expectations on the next earnings are high
p e ratio is not the only parameter for investing

Answer 5

Why would you pick a stock based on p/e at all, if the trend is down?

p/e is so 20th century.