Dear Reader,
Greetings from ANKIT STOCK VIEW TEAM!
Today we are going to share the How to read P/E( Price to Earning Ratio) and P/B ( Price to Book Ratio).
Calculation of Price to Earning Ratio:
PE ratio measures the PE ratio of the company . PE ratio is also known as "price multiple" or "earnings multiple". If P/E is 20, it means that the price of the stock is 20 times its earnings.
Formula for Calculating P/E= Price of the Share/ Earning per Share
For stock Selection purpose, we considered the P/E of industry and P/E of that particular Stock.
However in relation to Index as a whole, as a general practise, we calculate the P/E of Nifty.
Nifty PE ratio measures the average PE ratio of the Nifty 51 companies covered by the Nifty Index. If P/E is 15, it means Nifty is 15 times its earnings.
History clearly indicates us that Nifty is considered to be in oversold range when Nifty PE value is below 14 and it's considered to be in overvalued range when Nifty PE is near or above 22. The market quickly bounces back from the oversold region because intelligent investors start buying stocks looking to snatch up bargains and they do the exact opposite when Nifty P/E is in the overbought region.
Below is the Tabular Table clearly indicating How Nifty perform in relation to its P/E
Considering the Closing Price of Nifty 51 as on 16th March,2017, the P/E Value of Nifty is 23.65.
Calculation of Price to Book Ratio:
This is Similar to P/E Ratio. The only difference is that while calculating P/B Value, we considered the Book Price of Share (Market price in case of P/E Ratio). The Rest Concept is Same.
But while doing decision making considering P/B Ratio, we also consider the Dividend Yield Concept.
Nifty is considered to be in oversold range when Nifty P/B ratio is below 2.5 and it's considered to be in overbought range when Nifty P/B is near 4. Dividend yield generally bounces between 1 and 1.5. A dividend yield above 1.5 means its a good time to buy.
A long term investor should buy Nifty Bees as well as individual stocks when P/B ratio is near 2.5 to get maximum return from stock market. This is the point where Nifty is lowest which of course means that the so called "stock market gurus" on TV would be screaming gloom and doom messages about the world when the index reaches its lowest level.
Considering the Closing Price of Nifty 51 as on 16th March,2017, the P/B Value of Nifty is 3.47 and the Dividend Yield of Nifty 51 is 1.21.
This Article is only for your Knowledge Purpose. The Data is taken from various Websites Available on Google.
Greetings from ANKIT STOCK VIEW TEAM!
Today we are going to share the How to read P/E( Price to Earning Ratio) and P/B ( Price to Book Ratio).
Calculation of Price to Earning Ratio:
PE ratio measures the PE ratio of the company . PE ratio is also known as "price multiple" or "earnings multiple". If P/E is 20, it means that the price of the stock is 20 times its earnings.
Formula for Calculating P/E= Price of the Share/ Earning per Share
For stock Selection purpose, we considered the P/E of industry and P/E of that particular Stock.
However in relation to Index as a whole, as a general practise, we calculate the P/E of Nifty.
Nifty PE ratio measures the average PE ratio of the Nifty 51 companies covered by the Nifty Index. If P/E is 15, it means Nifty is 15 times its earnings.
History clearly indicates us that Nifty is considered to be in oversold range when Nifty PE value is below 14 and it's considered to be in overvalued range when Nifty PE is near or above 22. The market quickly bounces back from the oversold region because intelligent investors start buying stocks looking to snatch up bargains and they do the exact opposite when Nifty P/E is in the overbought region.
Below is the Tabular Table clearly indicating How Nifty perform in relation to its P/E
Considering the Closing Price of Nifty 51 as on 16th March,2017, the P/E Value of Nifty is 23.65.
Calculation of Price to Book Ratio:
But while doing decision making considering P/B Ratio, we also consider the Dividend Yield Concept.
Nifty is considered to be in oversold range when Nifty P/B ratio is below 2.5 and it's considered to be in overbought range when Nifty P/B is near 4. Dividend yield generally bounces between 1 and 1.5. A dividend yield above 1.5 means its a good time to buy.
A long term investor should buy Nifty Bees as well as individual stocks when P/B ratio is near 2.5 to get maximum return from stock market. This is the point where Nifty is lowest which of course means that the so called "stock market gurus" on TV would be screaming gloom and doom messages about the world when the index reaches its lowest level.
Considering the Closing Price of Nifty 51 as on 16th March,2017, the P/B Value of Nifty is 3.47 and the Dividend Yield of Nifty 51 is 1.21.
This Article is only for your Knowledge Purpose. The Data is taken from various Websites Available on Google.
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