The P/E ratio
- The stock price/earnings ratio is the price divided by the earnings per share (EPS).
- For example, if a company with a stock price of 10,000 won earned a net profit of 1,000 won per share, the PER would be 10x.
- If a company with a stock price of 5,000 won earned a net profit of 1,000 won per share, the PER would be 5x.
- In other words, the two companies have the same profit, but the former company is valued at twice the share price.
- Often used with PER (Price Earning Ratio)
- Negative opinions
- not effective in determining the stock value of innovative companies that are expected to grow rapidly
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