In share market what is P/E ratio xyz company share? what is its significance?

Answer 1

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

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

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.

However, you must be careful. Some industries have low P/Es in general and some (like some internet companies used to) have very high P/E ratios. So not only would you want to consider the P/E of the stock itself, but also the companies within the sector too.


FYI, 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, sales growth, 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 whose 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 2

I'm not sure if I'm answering your query but here goes. P/E ratio is known as the Price/Earnings ratio. The formula is derived by dividing the prevailing market share price by the earnings per share (EPS). For example, if EPS of company xyz is US$0.50 and the prevailing share price is US$8, then the P/E ratio would be 8/0.5, which is 4. This means that the share price is trading 4 times its earnings. P/E ratio is a common gauge to see whether a particular stock is too 'hot' and whether it is trading near is intrinsic value. If the P/E ratio is too high (preferably >20 times), it could indicate that the demand for this particular stock is high and hence it is overvalued. Cheers!

Answer 3

P/E is share price divided by earnings per share. It is sometimes referred to as a "multiple".

A share that sells for $10 and has earnings per share of $2 has a P/E ratio of 5.

Its a way to compare peformance and price of related companies. It is related to the pricing theory of capital stock. Analysts use it as a tool in measuring company value.

Answer 4

I don't like P/E, I think EV/FCF is much better. If you want, read some examples of the problem with P/E at http://www.valuestockreports.com/030407.htm
Hope this helps.