Category: Money tips Release Date: 2007-02-10
Price-earnings ratio also known as PE ratio, earnings per share for the stock price divided by the value derived, which is a measure of the stock whether they have an important indicator of investment value. In general, the lower price-earnings ratio, the more there is investment value; price-earnings ratio the higher the number of years longer to recover capital stock the lower the value of the investment. But investors often find:
Some individual stocks performed well, price-earnings ratio is low, but the stock does not rise, and some mediocre performance, high price-earnings ratio or even losses, but stocks rose. For example, Amoi Electronics last year's earnings per share, to 143 yuan, 10 yuan share price near the price-earnings ratio is only more than seven times, but the stock continues to fall; last year's loss per share of 0.21 yuan in Taiyuan Heavy Industry (6000169) have recently gone against the tide rose; Earnings per share 0.29 yuan, price-earnings ratio had reached 100-fold to 3-fold rise Magicstor; more than 10 times the price-earnings ratio is only Valin has been weak to rise.
These "abnormal" phenomenon is due to the above price-earnings ratio reflects only past performance, reflecting a static price-earnings ratio does not mean that the company's future operations. Some companies are now in the industry due to the high point of economy, performance greatly increased, although the low price-earnings ratio at this time, but once the peak period of growth in the past, the performance will soon decline in price-earnings ratio will raise, the individual may even turn into losses, so that low price-earnings ratio is no investment value of stocks. If the above Amoi Electronics, the history of the Unit in 2001 loss per share of 0.21 yuan in 2002, then becoming positive earnings per share 1.69 yuan, a high price-earnings ratio (or loss) when the stock price but at the low, when the stock price l high point, the lowest price-earnings ratio seems to be "the most investment value", the stock price began to U-turn down. The degree of industry, economy rebounded from its lows of the company, although the relatively high price-earnings ratio at this time, but the results once the rising price-earnings ratio will decline rapidly. For example, in 2001 earnings per share 0.13 Changan Automobile yuan, compared to the time the average price of around 7 yuan, the price-earnings ratio of 60 times, there is no investment value, but then the stock has been steadily rising, by 2003 the explosive growth in the automotive industry, share price rose 20 yuan or more, but price-earnings ratio dropped to less than 20 times (in 2003 earnings per share were 1.18 yuan), shares began to peak down at this time.
Can be seen to determine the suitability of a particular stock to buy, the most critical is to have "foresight", able to successfully predict which industries are "bottomed out pick-up" and which industries are "peaked down." A downturn in the industry, performance is poor, price-earnings ratio is high, but as long as the stock price at the low, but is involved in opportunities; once the peak has passed industry growth, performance although good, price-earnings ratio is also low, but it is very likely to decline in future performance, At this point it would be better to sell. "High price-earnings ratio + high growth + low price" can be used as buying opportunities; "low price-earnings ratio + low + high share price growth (or high rise)" can be used as a selling opportunity.
