Leveraging Price-Earnings Ratios For Profitable Returns And Growth
One of the most often used metrics for determining a company’s worth is the price-earnings (P/E) ratio, also known as the earnings multiple. It is calculated by dividing the current stock price by the trailing 12-month earnings per share. It is so keenly watched because it links the actual recent earnings success of the firm to the market’s anticipation of future company performance, which is ingrained in the price component of the equation. Investors are prepared to pay a larger multiple of current earnings in exchange for the prospect of future earnings in proportion to their expectations.
There are models to help gauge if a company’s price-earnings ratio is reasonable. The relative price-earnings ratio approach looks at the…
