What is a P/E Ratio?

So I don’t know about you but P/E ratio is very important to me, which is why in this post I want to break it down to you on why it’s important and what it is.

I can tell you firsthand P/E ratio has changed my way of thinking when it came to investments, because it allowed me to learn more about the company in general.

P/E RATIO IS…

The P/E ratio is a simple break down of the business answering one question “Is this company profitable,” but just as a disclaimer there are other ways to tell if a company is profitable.

Just by looking at the P/E ratio should give you and indicator of what the company is worth and if it’s overpriced. As my rule of thumb I like to look at companies that have a P/E ratio less than 15.

WHY IS P/E IMPORTANT

P/E is important because the only reason investors buy stocks is to receive dividends or increase their capital. If a company has been profitable for 5-10 years and would you invest in that company?

Each sector has a P/E ratio that sometimes averages higher than 15, which doesn’t always mean their over priced. I particularly like to receive dividends and the companies that pay a good dividends are usually undervalued. The reason undervalued companies pay is because they need more investors to help fund their expansion. So to keep the investors happy the undervalued companies hand out dividends so you won’t leave.

I hope this post helped you out.

THANK YOU FOR READING

THE WAY I SAVE

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