1.1.4.1 Re-discussion of P/E ratio

In Section 1.1.1.7, there has been a basic interpretation of the P/E ratio. Since the P/E ratio is the most commonly used indicator in fundamental analysis, it is necessary to further explore it here.

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

The P/E ratio is governed by two factors:

• Market price per share, this factor is changing every trading day;
• Earnings per share: relatively stable, with each release of financial reports.

Therefore, when using the P/E ratio, traders must first understand that the current P/E ratio does not represent the current share price and earnings per share. The P/E ratio seen by traders is actually the corresponding value at a certain point in history.

Second, what puzzles traders most is that analysts have different interpretations of the P/E ratio.

Here we can only illustrate the different analysis results through extreme examples.

As can be seen from this table, the same P/E ratio can analyze different results and lead to different investment behaviors.

[Thinking] Many conclusions are based on logical reasoning, but for the use of conclusions, people tend to ignore the premise of their conclusions. Think about the premise of these two analyses? Is there a problem with this premise?

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