Thread Threadexplaining #PE Ratio & #PEG Ratio & its use in #FundamentalAnalysis

(Must read for #FA learners)

🙏Like & RT to spread learning with all🙏

Views Welcome👉@dmuthuk @Vivek_Investor @datta_arvind @caniravkaria @FI_InvestIndia

#FundamentalAnalysis
#StockMarket

1⃣

Price to Earnings (#PE) ratio, also known as price multiple or earnings multiple is the ratio obtained by dividing the current share price by earnings per share (#EPS).

#StockMarket #Investing #FundamentalAnalysis
2⃣

P/E ratio is a reflection of the market's opinion of the earnings capacity & future business prospects of a company.

Companies which enjoy high investor confidence & have a higher market standing usually command high P/E ratio.

#StockMarket #Investing #FundamentalAnalysis
3⃣

On the face, it would seem that companies with low P/E ratios would offer most attractive investment opportunities. This is not always true.

Companies with high current earnings but dim future prospects often have low P/E ratio.

#StockMarket #Investing #FundamentalAnalysis
4⃣

As an #investor your primary concern is with future prospects of a company & not so much with its present performance.

This is why companies with low current earnings but bright future prospects usually command high P/E ratio.

#StockMarket #Investing #FundamentalAnalysis
5⃣

Better to invest in a stock with P/E ratio of 30 having good future growth prospects rather than investing in a stock having low P/E ratio of 5 or 6 but has an uncertain or bleak future growth prospects.

But at the same time never buy companies with too high valuations.
6⃣

Hence its always advisable to judge #PE ratio in conjunction with prospects of future earnings & growth of the company. This can be done using P/E ratio in conjunction with #PEG ratio.

@caniravkaria @Arpit1223 @FI_InvestIndia

#StockMarket #Investing #FundamentalAnalysis
7⃣

Price/Earnings to Growth (#PEG) ratio is calculated dividing company’s P/E ratio by growth rate of its earnings for a specified time period.

#StockMarket #Investing #FundamentalAnalysis
8⃣

PEG ratio gives a better picture about valuation of a company as compared to P/E ratio since it takes into consideration the company's earnings growth.

#StockMarket #Investing #FundamentalAnalysis
9⃣

In case of companies having high growth rates, their P/E ratio might be high & in such cases using just P/E ratio these high-growth companies would appear overvalued relative to others & in such cases better to use PEG ratio to get clear picture about company’s valuation.
🔟

#investor can use PEG ratio to know if a stock is overvalued or undervalued.

✅PEG ratio greater than 1 means stock is relatively expensive.

✅PEG ratio lower than 1 means stock is below its fair value.

✅PEG ratio will be negative when there is de-growth in earnings.
1⃣1⃣

Theory of #PEG Ratio gained it’s popularity when #PeterLynch started using it as one of his valuation metrics.

Peter Lynch would always prefer to invest in stocks whose PEG Ratio was less than 1.20.

#StockMarket #Investing #FundamentalAnalysis
1⃣2⃣

#PEG ratio actually factors-in both price valuation & stock’s future growth prospects.

If handled correctly, PEG can prove to be a reliable intrinsic value pointer.

#StockMarket #Investing #FundamentalAnalysis

More from Techno Funda Investing

More from Accounting

You May Also Like

1/ Here’s a list of conversational frameworks I’ve picked up that have been helpful.

Please add your own.

2/ The Magic Question: "What would need to be true for you


3/ On evaluating where someone’s head is at regarding a topic they are being wishy-washy about or delaying.

“Gun to the head—what would you decide now?”

“Fast forward 6 months after your sabbatical--how would you decide: what criteria is most important to you?”

4/ Other Q’s re: decisions:

“Putting aside a list of pros/cons, what’s the *one* reason you’re doing this?” “Why is that the most important reason?”

“What’s end-game here?”

“What does success look like in a world where you pick that path?”

5/ When listening, after empathizing, and wanting to help them make their own decisions without imposing your world view:

“What would the best version of yourself do”?
THREAD: 12 Things Everyone Should Know About IQ

1. IQ is one of the most heritable psychological traits – that is, individual differences in IQ are strongly associated with individual differences in genes (at least in fairly typical modern environments). https://t.co/3XxzW9bxLE


2. The heritability of IQ *increases* from childhood to adulthood. Meanwhile, the effect of the shared environment largely fades away. In other words, when it comes to IQ, nature becomes more important as we get older, nurture less.
https://t.co/UqtS1lpw3n


3. IQ scores have been increasing for the last century or so, a phenomenon known as the Flynn effect. https://t.co/sCZvCst3hw (N ≈ 4 million)

(Note that the Flynn effect shows that IQ isn't 100% genetic; it doesn't show that it's 100% environmental.)


4. IQ predicts many important real world outcomes.

For example, though far from perfect, IQ is the single-best predictor of job performance we have – much better than Emotional Intelligence, the Big Five, Grit, etc. https://t.co/rKUgKDAAVx https://t.co/DWbVI8QSU3


5. Higher IQ is associated with a lower risk of death from most causes, including cardiovascular disease, respiratory disease, most forms of cancer, homicide, suicide, and accident. https://t.co/PJjGNyeQRA (N = 728,160)