If the price of the stock is less than the P/E ratio is it a good buying signal ?

Answer 1

I don't think it matters.

Let me see if I understand. If the price of the stock is $10, and the P/e ration is 12, that means that the expected earnings of the stock are about $.83 per year per share. I don't think the fact that 10 is less than 12 has any effect on the expected future pricing of the stock.

Think of the p/e ratio as a percentage figure giving you some rough forecast of the earnings power of the company. A high p/e ration like 30 means that its an aggressive stock where people bid up the price in anticipation of growth rather than earnings. A low p/e ration like 8 means that it has steady earnings but people are not bidding up the stock in anticipation of great growth - so its a sleepy little stock that has steady earnings.

I think low prices are convenient for small investors, but the fact that the price is less than the p/e is meaningless because you are just comparing a dollar figure to a ratio and that's all.

Answer 2

It doesn’t matter that the price of the stock is less than the P/E ratio. Compare P/E ratios of different stocks to determine the “better deal” (the lower the P/E the better). However, since there are multiple factors that determine how good a stock is, it is prudent to use P/E ratios alongside other indicators to pick the best stock.

Answer 3

The price per share, in dollars has no direct correlation with the P/E ratio. The purpose of the P/E ratio is to assess how "expensive" the stock is, in terms of price as related to earnings.

Answer 4

Price = $1. Earnings = 0.50 per share P/E ratio = 2.

Price = $0.50 Earnings = $1.00 P/E ratio = 0.50

In the first scenario, your price is less than your P/E ratio, and in the second, the price is equal to the p/e ratio.

A big factor for P/E ratios is how many shares you actually have.