A high PE multiple must be justified with high growth prospects
A high PE multiple must be justified with high growth prospects

Don’t see PE in isolation

The P-E multiple is used to determine the attractiveness of a stock’s price relative to the market as measured by the PE ratio of the index and relative to peer companies by comparing it with the average PE ratio of the industry

The price-to-earnings (P-E) ratio or multiple is a metric used to value a stock. It is calculated as the market price per share divided by the earnings per share (EPS). The calculation of the PE ratio typically takes EPS of the trailing 12 months.

The P-E multiple is used to determine the attractiveness of a stock’s price relative to the market as measured by the PE ratio of the index and relative to peer companies by comparing it with the average PE ratio of the industry.

A stock that is trading at a low PE multiple need not necessarily be an attractive investment opportunity. The lower multiple may be on account of the market assigning the company a lower valuation on account of its poor growth prospects. Similarly, a high PE multiple must be justified with high growth prospects.

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