when we see the PE of a stock , is less PE does not always mean the stock is cheap ?


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when we see the PE of a stock , is less PE does not always mean the stock is cheap ?

2 Answer(s)


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Every investor looks at P/E multiple differently and invest accordingly. In most of the cases when a company is trading below its industrial average, it is regarded as undervalued stock but it really depends on the GROWTH and RISK of the company. If that undervalued firm has huge growth potential than it is profitable to invest otherwise not (Case is little bit different for mature firm).
People invest in high P/E also as they see company with huge growth potential.

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It can also mean that the EPS is more ie the number of outstanding shares in the market are less.It really depends on a lot of factor given the condition. Just try to play around with the denominator and numerator on how can they vary and you will hae a good understanding in no time.ATB