The P/E ratio - A key figure and nothing more.
"The share has a P/E ratio of 10, it is really cheap".
Let's be honest, how often have we heard or read this sentence.
Here is a small calculation examplewhy the P/E ratio is not necessarily the best indicator.
Initial situation:
- Share price old: 100€
- Profit old: 10€
- P/E ratio old: 10
Now the company presents new figures and the share falls by 20%, as the profit has plummeted by 50%.
New situation:
- Share price new: 80€
- Profit new: 5€
- P/E RATIO: 16
Result:
Although the share price has fallen by 20%, the share
even more expensive on a P/E basis than than before.
Learning:
Never buy a stock based on a single key figure!
#kgv
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PS: Got it from the Instagramstory of investing.lifetime!