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How to Calculate P/E Ratio?

P/E ratio is a good way for investor to calculate how expensive or how cheap a stock is relative to its earnings. In the other words, you can get a sense of whether a stock is overvalued or undervalued.

The ratio is calculated as follows:

P/E = Market Price per share / Earnings per share (EPS)

The earnings per share (EPS) can be obtained in the company financial statement. The lower the P/E, the cheaper the stock is and vice versa. However, high P/E ratio can also be a good thing or a bad thing. It depends on how you look at from different perspective. The low ratio also means that the company stock is currently undervalued, so if you can invest during this period then you can make some handsome profit when the share price go up later.

For example, if the company’s share price is RM1 and the EPS is only RM0.10, then the P/E ratio would be 1/0.1 = 10. If looking at the P/E ratio point of view, the higher the P/E ratio, the more overvalued the company is. Thus, do you think is it risky to buy that share? In this scenario, you should always follow the guideline to determine whether it’s overvalued or undervalued. Refer the guideline as follows:

PEratio

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November 2nd, 2011 | Leave a Comment | 3,042 views

Investment in a Bearish Market

With stocks plunging in Aug & Sept, we think there is a bearish trend for our global market. The financial problems in Europe will harm the global economy, as it is major importer of goods from US and China. So, what is happening in Europe is not single event. But, it’s a contagion to the global economy.

bearish market

Another negative impact caused by the S&P unprecedented downgrading of the US Treasury debt to AA+ which added to the pessimistic outlook. The US job market seen another downturn with unemployment rate hovering at 9.1%.

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October 29th, 2011 | Leave a Comment | 2,038 views

Recession an Opportunity for Investors

In 2008, the markets haunted by the sub prime crisis and skyrocketing fuel prices as well as high food prices. Today in 2011, we are now faced with a problem that seems to be inevitable. We are faced with an imminent problem which is credit crisis.

The Central Bank of America or Federal Reserve tries to stimulate the economy that was believed by many to be headed for disaster. But, most of the time the result was a short term boost in the stock market that lasted only a few weeks. Now, much economist fears that we are headed for a economic slowdown.

recession

Although recession can create many problems for our economy, it still can allow investors to make some money. Before making any investment during a recession, you have to know how the market behaves first. In general, the following things are usually observed:

i. The stock market is the first to be affected. During a recession, household income decreases, this will cause household spending to be reduced. When people spend less money to buy products, companies will suffer, and as a whole they will make less money and lower earnings. Lower company earnings will in turn reduce its stock price.

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    October 26th, 2011 | Leave a Comment | 3,052 views

    RM3000 is Poverty Line for Malaysian Household Income

    In handling the Budget 2012, our government major challenge is how to minimise the financial burden on people effectively. At the same time, it also needs to avoid transferring the people burden to the government in order not to destroy our economy. Therefore, while introducing citizen friendly measures to minimise their burden, there must also be measures to stimulate nation economic growth.

    RM3000 poverty line

    According to a Bureau of Statistics survey, out of a sum of 5.8million Malaysian households, a staggering 60% of them have household incomes of less than RM3,000.

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    October 23rd, 2011 | Leave a Comment | 11,265 views

    Don’t Panic When Market Crash

    Financial markets worldwide traded broadly lower in the month on August, which caused by the concerns over the health of US economy and Euro zone debt crisis. Now, I realize that we are actually experiencing nothing more than a correction. So, many believe that what had happen currently is not a bear market but just a correction. And, it will end very soon.

    market crash

    However, nobody will know the future. You must remember that anyone who tells you that he is absolutely certain that it’s a correction or the beginning of a bear market, then he is actually lying you.

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    August 19th, 2011 | Leave a Comment | 2,539 views