Is price to earning ration p/e is correct way to value stock ?

rakeshseth's picture

 #

First of all

What Does Price-Earnings Ratio(P/E) Mean?

It is ratio of a company's current share price compared to its per-share earnings.

For example, if a company is currently trading at 150 Rs a share and earnings over the last 12 months were 5 Rs per share, the P/E ratio for the stock would be 30 (150/5).

Forward P/Es are the most important valuation method because they reflect the future growth of the company. Stocks are priced based on their future earnings, not on their past earnings.

 

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