16 August 2017

Weekly Insights From The FNArena News Desk 14/08/17

First up, not a day goes by without me witnessing with a bleeding heart how talking heads on TV rattle off Price-Earnings (PE) ratios for stocks as if these numbers distinguish the good from the bad, the silly from the obvious, the “cheap” from the “expensive” stocks. This is by no means the case, certainly not in the way these numbers are being quoted by most market commentators.

When using PE ratios as a tool, it is imperative to understand that both earnings projections and the share price are fundamental to the calculation of the PE ratio, which is derived from dividing the share price by projected earnings per share next year or the year thereafter. Hence the outcome is a multiple like 14x or 32x or 8x……

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