Knowing how to accurately value a stock enables traders to identify and take advantage of opportunities in the stock market. Find out the difference between a stock's market and intrinsic value, and the importance of the two here:
A company’s price earnings ratio, or P/E ratio, is one of the most popular ways to value a share due to its ease of use and mass adoption by investment professionals.
The same level of analysis needs to be conducted for Company C, which has a P/E ratio well above average. While it looks expensive, it is possible that the market has factored in an increase in future growth in earnings and therefore, investors are willing to pay more for these increased earnings.When taking the P/E ratio a step further, traders are able to get a good idea of the value of a stock when incorporating the growth rate of Earnings Per Share .
According to the PEG ratios, Company A is alright, company C looks very attractive even at its high price and Company B does not look flattering at all.
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