As at 6th Jan 2012, our local market is valued at a P/E (Price per earning) of about 14.8x on 2012 earnings. In the other words, it is currently lower than the 10-year average P/E ratio of 16.7x. So, it would be good opportunity for investor to make own assessment and decision in the present market condition.
P/E ratio is commonly used by stock traders to value a company. It reflects whether a company’s share price is overvalued or undervalued.
PE (Price per earning) = Current share price / EPS
It’s crucial for us to focus on individual stock using the market P/E ratio. It can prevent investor from being traded into a bubble situation which is the riskiest environment for an investor to indulge in.
However, there are 2 very important points to take note when using the P/E ratio as indicators to choose stocks:
i. Compare those companies within the same sector.
ii. Comparing the past year and current year performance for the selected stock to determine the stock potential.
thank you for your knowlage anf infomation