Are U.S. stock indexes with high price-to-earnings ratios set to crash? Rising price-earnings ratios, downgraded corporate profit expectations and continued Fed rate hikes could trigger a stock market decline.
Extended Knowledge
The lower the stock P/E ratio, the better it must be, and conversely the higher the stock P/E ratio, the worse it is.
The price-earnings ratio is one of the technical indicators of a stock, and the price-earnings ratio of a stock can best reflect whether a stock has an investment value, and it can also tell whether the stock is overvalued or undervalued.
In order to better understand the meaning, significance and use of the stock P/E ratio, the following three steps to answer the question of the stock P/E ratio, in the end, which is better? After analyzing the answer will come out.
1, what is the price-earnings ratio?
The price-earnings ratio means the ratio of the latest price of a listed company's stock to its net earnings per share, which is replaced by PE in the stock market.
The P/E ratio of a stock has its own formula, price per share/earnings per share = P/E ratio, according to this formula, as long as we know the stock price and earnings per share, we can calculate the actual P/E ratio of the stock.
2, the significance of the price-earnings ratio
In fact, the stock price-earnings ratio in the technical analysis is really a worthwhile analysis of the technical indicators, because the price-earnings ratio can reflect whether the stock has investment value, to see whether the stock is overvalued or undervalued, reflecting the investment in this stock need to be how many years to return to capital.
Significance one: The biggest significance of the price-earnings ratio can be seen whether the stock has investment value, the price-earnings ratio is generally 20 times as a demarcation line, when the price-earnings ratio is higher than 20 times, it means that the stock price is a little high, more than the intrinsic value of the future decline in the risk of a large, not quite the value of the investment, and vice versa.
Significance two: To determine whether a stock is overestimated or underestimated, inevitably, or 20 times as an example, the P/E ratio is higher than 20 times the stock identified as overestimated, the P/E ratio is lower than 20 times the time considered to be underestimated, according to this inference stock P/E ratio the lower the better, the lower the lower the more proof of the more underestimated the stock, the low estimate of the stock has a great potential for rising.
Significance three: Another significance of the price-earnings ratio is to see how many years this stock needs to return to the capital; in accordance with the definition of the A-share market, the price-earnings ratio of how many times the number of years you need to invest in order to return to the capital. For example, a stock with a P/E of 10 times will take 10 years to pay back its capital, and a stock with a P/E of 50 times will take 50 years to pay back its capital.
3, the price-earnings ratio is good, or low?
By analyzing the meaning and significance of the P/E ratio earlier, the answer has been very clear, the stock P/E ratio is definitely the lower the better.
Perhaps many people still do not understand, the lower the stock price-earnings ratio the better, rather than the higher the better? The reason is that the lower the stock P/E ratio, the more proof that the stock has investment value, the more it can show that the stock price is in the underestimated, the more it can show that investing in this stock needs a shorter time to return to the capital, which is the advantage of the low P/E ratio stock.
Low P/E stocks have three major advantages, on the contrary, high P/E stocks have three major disadvantages, high P/E stocks do not have investment value, the more it can show that the stock is overvalued, the more it can show that investing in this stock will take a longer time to return to the capital.
Lastly, once again, the lower the stock P/E ratio the better, not the higher the better, if anyone tells you that the higher the P/E ratio the higher is definitely a liar.
A friendly reminder: the price-earnings ratio is certainly the lower the better yes, but because the A-share is a speculative market, the price-earnings ratio is high or low can not determine the rise or fall of the stock price, regardless of the price-earnings ratio is high or low, the stock can give investors investment income is good.