1.1.1.7 Price–earnings ratio

The next article will explore some of the other data in the dynamic display board. These data are not directly related to the transaction, but they affect the judgment and actions of the trader.

P/E ratio=price of share / earnings per share

The P/E ratio reflects that when a trader buys a stock at a certain price, if the company can continue to operate according to the past profitability, then the trader can recover the transaction cost in this ideal state after several years.

On the surface, this is a very easy to calculate data, but because of the different time points, it will cause a lot of ambiguity. E.g:

• Price per stock: Since the stock price fluctuates every day, which value is more reasonable?
• Earnings per share: Since the profitability of each stage of the company is also different, which value is more reasonable?

【example】

Price fluctuation

Earnings per share 

The difference between the two data collections, the calculated P/E ratio results are different, which will cause the trader to bias the stock expectations.

Therefore, the trader needs to know that when analyzing the P/E ratio data, it is necessary to know clearly which two time points or time periods the data is collected, so as not to cause the deviation of the analysis.

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