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V. 19:5 (34-38): Screening For Misvalued Stocks by Martti Luoma and Reijo Ruuhela
V. 19:5 (34-38): Screening For Misvalued Stocks by Martti Luoma and Reijo Ruuhela
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Valuing A Stock Using Earnback Periods
Screening For
Misvalued Stocks
by Martti Luoma and Reijo Ruuhela
You wont get an edge on finding good trades using the same tools everyone uses. Heres a new look at finding misvalued stocks.
T he price/earnings ratio (P/E) is undoubtedly the most common valuation measure of a stock, and also the most commonly misused. P/E combines outside information (price) and inside information (earnings). Because of the central roles that price and earnings play, it is not particularly surprising that the use of P/E is so popular among analysts and investors.
It is well known that stocks should have as near to the same growth rate as possible when they are compared using P/E, because the valuation of a stock is not a matter of analyzing only a single years earnings. Unfortunately, it is often necessary to compare stocks with different growth rates. As a measure of valuation, however, P/E neglects different growth rates of earnings.
by Martti Luoma and Reijo Ruuhela
You wont get an edge on finding good trades using the same tools everyone uses. Heres a new look at finding misvalued stocks.
T he price/earnings ratio (P/E) is undoubtedly the most common valuation measure of a stock, and also the most commonly misused. P/E combines outside information (price) and inside information (earnings). Because of the central roles that price and earnings play, it is not particularly surprising that the use of P/E is so popular among analysts and investors.
It is well known that stocks should have as near to the same growth rate as possible when they are compared using P/E, because the valuation of a stock is not a matter of analyzing only a single years earnings. Unfortunately, it is often necessary to compare stocks with different growth rates. As a measure of valuation, however, P/E neglects different growth rates of earnings.
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