Do you want to buy great stocks? If you do, then you will need to take the help of PE ratio. The important question is what is PE ratio? The Price Earning (PE) ration is basically the current market price of stock divided by its earnings per share. It is the money that you pay against each rupee worth of the company’s earnings.
Now, the question is how will understanding PE help you to purchase great stocks. If you understand the PE you will be able to gain some idea regarding the growth potential of the stock. Stocks that have low PE can prove beneficial as their growth potential is yet unknown in the market.
Most of the times, high PE means over-priced stocks. This means that its growth potential is not as high as its price. Therefore there are high chances that these stocks will crash drastically. It is advisable to sell your holdings before the prices of the stocks crash.
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Tags: Pe Ratio, Ratio
Posted November 27, 2010 by John Wane under Financial News