Tuesday, 23 June 2009

What is 'low' PE ratio?

"You should look for stocks with a low PE ratio." What is 'low'?
Depending on your point of view, low PE ratios could mean:
  • PE of 5 or below
  • PE of 15 or below
  • anything less than the median PE of the S&P 500 industrials
  • PE in the bottom 20% of the market
  • PE that is less than the annual EPS growth rate of the company (PE/EPSGR ratio less than 1)
All the above precise definitions of 'low' PE have been used by various investors.

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