A stock normal price-earnings ratio is indeed defined as between 15 ~ 25 times, in this interval of the price-earnings ratio belongs to the normal valuation, on the contrary, more than 25 times belongs to the overestimated, less than 15 times belongs to the underestimated.
As for the a-share market why the normal price-earnings ratio is in 15 times to 25 times, more than 25 times the price-earnings ratio even if overvalued? The real reason for this question is particularly simple, any stock indicator is to set a normal value, in order to help investors to better measure the value of a stock.
The A-share market to set the price-earnings ratio at 15 times to 25 times the price-earnings ratio is reasonable, means that according to the current earnings of listed companies to judge, investment in this stock want to double the earnings to be as long as 15 to 25 years, the investment doubled the return time is reasonable.
When a listed company's price-earnings ratio is higher than 25 times, it means that the company's doubling of the return on investment will be too long, indicating that the company's stock has exceeded the reasonable range, was judged to be overvalued.
For example, bank time deposit interest rates, the central bank will likewise set a reasonable deposit rate for banks, set as a bank deposit interest rate will not exceed 6% per annum, as long as where the bank deposit interest rate is higher than 6%, which means that this bank is higher than the market interest rate, to be cautious of non-term deposits, and for no particular reason.
Similarly, the stock market price-earnings ratio indicator is also set a reasonable value, as long as the stock is still between 15 times to 25 times, it proves that this stock is reasonably valued, but also in the normal range of investment, this stock can also be invested in; Conversely, the overestimation of 25 times is overestimated, this stock is not worth investing in the future, the probability of stock prices appearing to be down is greater.
On the contrary, when the stock's price-earnings ratio is lower than 15 times, indicating that the stock is still in the state of being underestimated, being underestimated is that the stock's share price is still relatively low, the future of this stock has the potential to rise. According to this speculation, the lower the stock price-earnings ratio, the better, the lower the price-earnings ratio shows that the return on investment time is shorter, the more worthwhile to invest in.
Summarizing, the stock price-earnings ratio is one of the technical indicators that divides all the stocks in the A-share market into three, six, nine, etc., that is, into undervalued, reasonably valued and overvalued; as for why the stocks are undervalued and overvalued, there is no real reason, and we just need to know for ourselves whether the stocks are overvalued or undervalued.
It must be clear that the stock price-earnings ratio is to determine the valuation of a stock of technical indicators, this indicator is very valuable to medium- and long-term investors, but the price-earnings ratio of the high and low and the stock is not directly related to the ups and downs of the stock, I hope that the shareholders and investors should be reasonable to take advantage of.