Question

Im confused trying figure out if i buy stock based on PE mutiple approaches, assuming 20 times

Question: Do I buy stock?

5 * 20 = 100

100<119.13 = do not buy

or

Pe ratio:

23.83>20 = buy

Search for news or symbols WMT - Walmart Inc. NYSE- NYSE Delayed Price. Currency in USD 119.13 0.76 (-0.63%) At close: 4:00PM EST |Red Green Area Full screen 120.80 119.89 119.07 118.00 10 AM 12 PM 02 PM 04 PM 1D 5D 1M 6M YTD 1Y 5Y Маx Buy Sell Previous Close 119.89 Open 120.21 0.00 x 800 Bid Ask 119.00 x 1300 118.40 120.48 Day's Range 85.78 125.38 52 Week Range Volume 4,190,266

Answer 1

PE Ratio is Price divided by Earnings.

This is used to identify if the stock is undervalued or overvalued.

Stocks with High PE should be avoided as future earning is already taken into consideration and stock price is up. Low PE should be invested as there price is yet to move.

So if current PE is 20 and Earning is 5 so Price should be 100. If stock is available below 100 we should buy it or else not. However buying shouldn't be taken only based on current PE, there are few factor which should be taken into consideration.

1. Industry PE - We need to see what is average industry PE of the stock. What is PE of competitors and by knowing that we would be able to know if stock is under valued or not
2. Historical PE - We also need to know the Historical PE of the stock and if current PE is below that or Above.
3. As PE will differ industry wise, some industry works at higher margin will have high PE and some industry have lower PEs. so only looking PE of a stock we should not jump to conclusion of buying or selling

If Industry PE is 80 and Stock PE is 40 we should buy it immediately.

Hope this helps.