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| What is a PE ratio & is my stock's PE too high? By The-Adviser.com - |
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New York - A price earnings ratio (PE) is calculated by dividing the market price per
share by the current or a projected annual earnings per share. It measures the market's
expectations regarding earnings growth potential and risk. You need to evaluate your stock with competitors within a particular industry. Stocks with high PE ratio, when compared against competitors within a particular industry, generally indicate that it is being valued by the market on the basis of high-expected growth potential relative to other companies. For instance, if your stock has a PE ratio of 50 as compared to an average of 20 for competitors, it would indicate that the market expects earnings growth of 50% compared to competitors that are expected to grow at 20%. This means your stock is more vulnerable to a sudden downturn if anticipated prospects change. Hence, if you do not believe the company's earnings growth will be 50% you should consider selling your stock. The Independent Adviser Corporation offers professionally managed accounts. Are you unsure if one of our professionally managed accounts are right for you? To find out more about out Ask The-Adviser.com Click here to learn about our professional money management accounts |
PE ratios should be viewed on a relative and on a historical basis. Got an investment question?
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