Question

2.What does mean a PBR much higher than 1 ?
3.Does a “high”P/E necessarily mean that the company is experiencing a high growth ?
4.Do you prefer to buy liquid stock ?
5.What are the two components of a stock return ?

Answer 1

2. Price to book ratio (PBR) ,higher than 1, means that the stock is trading at a price which is higher than it's book value price.

When a company compares its market price with its book value , which is the value it carries on its balance sheet. A higher ratio implies that the share is either overvalued or that investors are willing to pay even a higher price/premium to purchase this stock .A low ratio that is less than 1 could indicate that either the stock is undervalued or something is fundamentally wrong with the company.

3. No not necessarily. Sometimes value stock have lower P/E and growth stocks has a high P/E because investors are willing to pay even a higher price for the stock as they believe in the growth potential of the stock. No, it might indicate an over valued stocks as well from which the investors stay away from.

4. Yes. Investors love liquidity. So, as an investor even i prefer stocks which are highly liquid and can return my money back to me in a short time and from which i can withdraw my money at any time i need. So, if i an easily sell the share due to it's liquidity as large volumes of the share are traded on a daily basis.

5. The 2 components of stock return are:

• Dividends
• Capital appreciation.

Dividends are paid either semi-annually/quarterly or annually or not paid at all by the companies depending upon their polices of distribution the excess cash to investors as dividends.

Capital appreciation is the rise in the price of stock due to several factors , which can provide a gain to the investors investing in it.