These are the most commonly used valuation metrics:
1)P/E ratio
2)P/S ratio
3)P/B ratio
Here is how investors can apply these metrics
[THREAD]
1)P/E ratio
2)P/S ratio
3)P/B ratio
Here is how investors can apply these metrics
[THREAD]
1)P/E Ratio
The Price To Earnings ratio is a ratio of a company’s share price in comparison to its earnings.
The ratio could help investors decide if a stock is undervalued or overvalued.
The Price To Earnings ratio is a ratio of a company’s share price in comparison to its earnings.
The ratio could help investors decide if a stock is undervalued or overvalued.
The ratio essentially shows how much an investor can expect to invest in a company to receive R1 of its earnings.
For example, a P/E multiple of 20x means that an investor can expect to invest R20 for R1 of the company’s current earnings.
For example, a P/E multiple of 20x means that an investor can expect to invest R20 for R1 of the company’s current earnings.
Many investors prefer to compare the P/E ratio with companies in the same industry to determine if the ratio is high or low.
A higher P/E ratio indicates that the stock is overvalued, while a lower P/E ratio indicates that the stock is undervalued.
A higher P/E ratio indicates that the stock is overvalued, while a lower P/E ratio indicates that the stock is undervalued.
Ultimately, this is not a sure-telling way to determine if a stock is undervalued.
2)P/S Ratio
The Price To Sales ratio compares a company’s share price to its revenue. It shows the value that the market has placed on each rand of revenue.
Like the P/E ratio, the P/S ratio is best used when comparing it to similar companies.
The Price To Sales ratio compares a company’s share price to its revenue. It shows the value that the market has placed on each rand of revenue.
Like the P/E ratio, the P/S ratio is best used when comparing it to similar companies.
A lower P/S ratio indicates that a stock is undervalued while a higher P/S indicates that a stock is overvalued.
3)P/B Ratio
The Price To Book ratio compared a company’s market cap to its book value.
If a company liquidated all its assets and paid off all its debt, the value remaining would be the company's book value.
The Price To Book ratio compared a company’s market cap to its book value.
If a company liquidated all its assets and paid off all its debt, the value remaining would be the company's book value.
The ratio is often used with the return on equity metric which is a growth indicator.
It is hard to determine what a “good” P/B ratio is; however, traditional value investors consider any value under 1.0 to be “good” while others may use 3.0 as their benchmark.
It is hard to determine what a “good” P/B ratio is; however, traditional value investors consider any value under 1.0 to be “good” while others may use 3.0 as their benchmark.
4/ To Sum Up
Although these metrics can be great for providing insights into a business, it does not mean the metrics are necessarily accurate.
Always do your own research. There is plenty that goes into valuing a stock
Although these metrics can be great for providing insights into a business, it does not mean the metrics are necessarily accurate.
Always do your own research. There is plenty that goes into valuing a stock
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