 First correct answer gets best answer? |
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jssmith44 | How do you determine what is a good price of a stock? How do you indicate whether the p/e matches price per? |
How do you determine what is a good price of a stock? How do you indicate whether the p/e matches price per share? |
 |
 
SJ
|
p/e by itself is not a very good indicator.
p/e/growth rate seems a little arbitrary -- a 'perfect' value of 1 means the p/e is the same number as the current earnings growth rate. I do use this in deciding if a stock is 'good', but not so much to judge good price.
cash flow (price to cash flow under 10), low number for price to sales (varies by sector - low margins & low price/sales go together), top line revenue growth rate.
Dividend payer is a plus, but payout must be 55% or less.
I rarely buy stock of a company with no debt -- if they are such a good busines why are they not leveraging their capital? But I'm very reluctant to buy if debt exceeds 50% of market cap.
Financials are different -- you need to include book value, cash flow is not as relevant.
These indicators are a lot harder for a company to play around with than just earnings, which theoretically can be moved short term to meet analyst expectations. |
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¡¿ʇɐɥʍ ʎɐs
 |
if its cheap- read up on the "baige book"...a econimic report that comes out 7-8 times a year about good/bad economic indicators of the past year... |
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redwine
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therin lies the $64,000 question. You can get p/es off of google or yahoo finance. Alot of times people use forward p/es for valuation, and they tnere is the view of growth relative to other companies. good luck, if it were easy,we'd all be millionaires. tba |
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ANDREW L
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Use discounted cash flow to determine the fair value of the stock. www.finysis.net produces some good e-books and software on this. I would suggest buying the Corporate Analysis, Volume 1 e-book and the Corporate Financial Analytical Tool. The website also provides some good advice on investment strategy. |
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MM
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The price of a stock is random and arbitrary.
Studies have shown that the P/E ratio is generally no more reliable than any other method of picking stocks. The reason is that the primary movers of share prices are not the health of a company, but rather random price behavior in the stock markets, the influence of market manipulators and speculators, and crowd psychology.
A better method than P/E would simply be to follow the movements of the company owners. When the share price of a company is much "higher" than warranted, you will typically see the owners of the company (insiders) selling their own shares. Likewise, when the shares of a company are at a "discount", you will see the insiders buying large quantities. This is because, of everybody in the world, the owners of a company are the best-equipped to know whether their own shares are too high or too low.
Any price action between these two points is simply the whims of the market.
Another good indicator as to the "relative" undervalued-ness or overvalued-ness of a stock is the "50% retracement rule." This rule states that, in most circumstances, a stock that has retraced 50% of its move from a peak to a valley, is in a good position to BUY it. The reverse is also true. A stock that has retraced 50% of a fall from a peak to a valley is in a good place to SELL SHORT.
For details on this rule and examples, please google it. |
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Andrew S
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P/E is either trailing twelve months (or TTM), which is an historical measure, or a "forward" P/E, which is based on analysts' expectations. P/E is entirely determined by the firm's net earnings compared with the firm's trading price.
Higher P/E stocks (20 or higher) are regarded as risky by some; lower P/E stocks (12 or less) may be firms in distress or may have some reason to be valued less than other firms by investors.
P/E is exactly that - price per share divided by earnings per share.
You should also examine the firm's free cash flow per share per price, price to sales, earnings and cash flow records, and a number of other factors such as the firm's senior management and competitive environment.
Porter's 5-Forces model is a good qualitative framework; include also any regulatory, legal, labor, or government action in your analysis.
Can the firm's success be easily duplicated by competitors, or do they have an "economic moat" such as patents, developed distribution channels, superior products/services, or a popular, well developed brand?
Include these factors in estimating the firm's future potential earnings growth.
P/E ratios are really only a part of the puzzle, and much like EPS they're a fairly superficial measure. To do well, you should dig a little more deeply!! |
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noplomojovens
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Ask a broker.. you have no business trading stocks on your own if you don't know the answer to your simple question |
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