- trailing earnings
- estimates of future earnings
- normalized earnings over a business cycle
It can be adjusted for a variety one-time items, or not adjusted at all.
For some industries it works better to use different ratios (ex: EV/EBITDA, P/FCF, FFO) rather than P/E.
You also do not want to just look for the lowest P/E stocks. An extremely low ratio is often a sign of distress of some kind; product obsolescence, lawsuits, new competition, etc.
You need to find stocks that are relatively cheap, but that have some catalyst that will encourage market participants to bid up the price in the future. That is why "low P/E" is not typically used alone, but in conjunction with other models like "estimate revision", "earnings surprise", or "earnings quality".
My point is not to make it daunting, but to make very clear that one simple rule is not sufficient. Here are 3 books I always recommend, 2 easy and the third more challenging:
One Up On Wall Street - Peter Lynch
A Random Walk Down Wall Street - Burton Malkiel
The Intelligent Investor - Benjamin Graham
P/E is a very poor indicator of a company's value cos
1) the earnings is based on its last reported earnings
2) the price is based on what other investors expect the earnings to be in the future.
3) it makes no allowance for the value of assets the company holds
4) it makes no allowance of any future restructuring of the company (to make it more efficient)
4) it makes no scientific analysis of its future prospects (only the expectations of other investors)
I'm earning good money with this binary option signal sofrware ( http://forexsignal.kyma.info ) What I'm going to show you now might irritate old-fashioned traders who can't accept that a piece of software can outperform what they have learned through many years of trial and error
P/E is a standard, it can be manipulated. Use Moodys or Morningstar or S&P for comparing one stock to another on P/E.
You would be better off using cashflow indicators and also checking the beta (how the stock moves relative to the average). High beta stocks have fast moves up and fast move down, low beta stocks do not.
Do not keep yourself to one indicator
Go to Yahoo Finance (or many other sites do this too). Set up a mock portfolio. ALL of the company metrics are listed for each stock symbol, including P/E. Follow your stock picks for a year. If after a year you like your returns and you've learned more than just price to earnings, open a discount brokerage account and start investing real money. All of the online brokerage sites have similar listings and charts, but you might continue with Yahoo Finance.
Hi, I'm new to investing. Where do I find the lowest P/E stocks? Based on the answers from my earlier question I know I will most likely have to calculate it myself, if so 'where do I get up to date information to calculate a company's P/E?'
Is there a website?
How do other investors normally organize the company's they will calculate, how do they do it?
