Welcome



About Us



Site Map



Investing Secrets



Work from Home



Save Money



Contact Us

FREE Investing Newsletter

Click Here for more information

P/E Ratio -

Some investors use the P/E ratio to measure the value of a stock. The lower the P/E ratio, the better, as long as it is above zero. A negative P/E means that the company is losing money and going into debt.

Typically, a P/E ratio under 15 is considered good. However, as a technical trader, I find the P/E ratio of little use. I have seen stocks that were a "bargain" (according to the P/E) drop even lower in price and I have seen grossly overvalued stocks continue to rise and hold their gains.

Some might say that over the long term, buying stocks with low P/E ratios will pay off. Possibly, but I am unwilling to wait for long periods for this "possibility" to occur. Many things can change about the company in the meantime, which puts your money at risk.

I'm not saying that P/E ratio is completely useless, but other more important factors must also be considered, particularly growth and earnings.

The bottom line - if you buy a security based on other forms of analysis and it just happens to have a low P/E, then consider this happy coincidence an added bonus. Remember, over the long-term, an oversold stock may rise in price to return to a fair P/E level. Or the company could go bankrupt and leave the stock worthless. Always use other factors to evaluate a stock instead of placing too much emphasis on P/E ratios.