Part 1 of this Blog Series was scribbled about a week ago - I recommend reading that and understanding it before trying to get your head around this one - it’s an extremely important topic but not particularly easy to get a grip of.
How to Interpret the P/E Ratio
Right, now we have got to the critical bit. Calculating a P/E Ratio (remember, I prefer the Forward P/E Ratio) is one thing, but it is not much use if you have no framework and knowledge to put that Number into context. The following list should help with that interpretation (well, that‘s the plan anyway - you may need to read it a few times and perhaps makes notes - this is extremely important):
I warned you that was a tough but critical set of Bullet Points. In Part 3 of the Blog Series I will look at some other simple methods to value things and how you can use P/E Ratios in a practical day to day Trading sense.
Right, you better stretch your legs and get a brew and read it again because there is a small chance it will make a bit more sense if you read it again !!
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