Price earning ratio, is used to do a comparative evaluation while purchasing a stock. In most of the news paper, It is given by the name of P.E. ratio.
Now what is price earning ratio?
Price earning ratio is Market price of equity share/Earning per share.
More price earning ratio means stock is more valued in market.
If there are two stocks of same Industry and same status, like Infosys and wipro and for ex:- Infosys has more P.E. ratio and wipro has less, that means Infosys is over valued in comparison of wipro.Thus Wipro is a better stock to buy in comparison to Infosys. And In case Industry PE is even higher then Infosys is also a good buy but wipro is even better.
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