P/E is used to define that a stock is over price or under price. for example our index P/E is near about 12 so if you buy a stock which P/E is higher then 12 then it show you are too optimistic about that Company future and you pay its more then 12 year earnings for one share.
i think you understand means of P/E i again explain for you if a share earn 10 rupees in a year and it traded in 120 in market then it P/E is 120/10=12 it show share is fairly priced but if you buy a share which P/E is 80-500 then it clearly show you are gambling in the market and more chance to loose your money.
so buy stocks only 8-16 P/E less then 8 P/E stock are also danger because it show market is undervalued these stock and some thing is wrong with share because market is always right
5 years ago
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