Analysis of Asset Allocation

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Fundamental Analysis: Price Earning Ratio (P/E)
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Description

The P/E is calculated as follows:

P/E = Stock Price/Earning per share

The P/E gives you an idea of the numbers of years the company needs to work to generate the price you have paid for the company (under the assumption that the incomes don't fluctuate). Because the incomes are not always the same from one year to the other, expected P/E for the X coming years have been developed and are published by the analysts.

Companies with high P/E are considered as recognized by the market for their future profitable growth (and of course a low P/E indicates the opposite).

But what is a high or low P/E? This question can be answered in many ways. The first is to compare the P/E of a stock with the one of the entire market or the industry. But even, if the overall market is overvalued, it will not be of help.

An alternative could be the cash flow.

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