PE ratio is calculated by dividing the share price with earnings per share (EPS). Theoretically, PE ratio tells us how much investor is willing to pay for per dollar of company profits. If the share price grows along with the company profit, the PE ratio remains fairly consistent (a good sign). Generally speaking, the P/E ratio is a better indicator of the value of a share than the share price alone. With the Equityfriend PE plotting tool, now you can analyse the historical trend of PE of a specific stock or index.
Word of Caution
P/E ratio alone, does not take company growth prospects into account. Investors should be cautious while investing in stocks with fluctuating PE as fluctuations indicate that the stock is news driven and risky from an investment perspective. It’s better to avoid companies with a PE ratio greater than 25 (unless long term average industry PE is in the same range, which is the case for some growth industries) as they are too expensive even for a high-quality company. Overall, investors should prefer low PE stocks with higher growth prospects while choosing stocks from the same industry.
Note* - The Price to Equity ratio we calculate is based on EPS of trailing 12 months, however there might be slight deviation from actual figures based on when the quarterly results are updated in our database.
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