RUDI FILAPEK-VANDYCK | What is the PE Ratio?

One of the most used investment tools available is the Price-Earnings (PE) ratio. It causes so much confusion among investors who like to treat it as a one size fits all instrument to find "value" in the share market.

According to Rudi Filapek-Vandyck, there is no such thing as a simple universal measure to decide which stocks represent attractive "value" and which ones are "overvalued".

Growth stocks do not trade on a low PE, unless there is something fundamentally wrong with the business.

Infrastructure assets are valued against bond yields, so PE plays no role whatsoever.

Then there is your typical commodities producer - highly leveraged to the swings in prices through different stages of the cycle - that turns the whole concept of buying low and selling high on its head.

Here's a link to the blog post that this episode was based on.

What Is the P/E Ratio?

"The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple. P/E ratios are used by investors and analysts to determine the relative value of a company’s shares in an apples-to-apples comparison. It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time." Investopedia

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