What is a good P/E ratio for a stock? Is P/E ratio high or low better?
I would like to know is high P/E ratio good or bad? and what does negative P/E ratio means? I am doing research on stock market trading from last 3-6 months and soon I am going to start with paper trading. Before I start dummy trading, I want to understand few of the trading analysis concepts.
The price-earning ratio (P/E ratio) is an important indicator amongst the most generally used tools or software's for stock market analysis by financial investors and experts for deciding stock valuation whether a companies stock price quoted is exaggerated (over-valued) or underestimated (under-value), the P/E can uncover how a stock's valuation looks at to its comparison within same industry.
Important things to remember for P/E ratio:
- By and large a high P/E ratio implies that financial investors feels that stock price is over-valued.
- When there is a low P/E ratio which means that stock valuation is under-valued.
- Normally P/E ratio for stocks is around 20-25 times earnings.
- The Price Earnings ratio can be used as estimated earnings to get the forward looking P/E ratio.
For our readers we have elaborated this topic in article what is a good P/E ratio? where we have explained in detail with examples and importance of it. Please go through it.
In conclusion to whether high p/e ratio good or bad? or p/e ratio high or low better? I would say that when stock price is under-valued, it is attracted to quality investors but this doesn't means that higher P/E ratio is bad always. Its always advisable to not rely only on one indicator before picking up the stock.