Decoding the PE ratio of a stock

At a glance Price-Earnings or PE is the most widely valuation metric by equity market investors However, arbitrarily shifting PE levels and differences across industry groups mean it’s hard for an investor to utilize it in his decision-making The conservative interpretation of PE should be “the number of years of earnings it will take to pay back your cost of buying a share” Additionally, PE is an indicator of the market’s expectations of earnings growth over a sustained period of time. Working out that expected growth number provides an investor additional information on the suitability of a purchase Ask a

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