P/E

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Tara

Tara (Querist)
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15 April 2009 how p/E of two companies are compared for
to buy or not to buy a stock

Sachidanand Singh

Sachidanand Singh (Expert)
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16 April 2009 It is debatable.

Buying a low PE share assumes two things: a) market has not realised that it is undervalued b) market will realise after some time that it is undervalued then the market will value it correctly (at higher price) and I will get out of the stock at a profit.

Could be low PE stocks are going cheap because they have low value to offer, with less scope of growth etc. After all I can not be the first to spot that a stock is having low PE, why others have not bought it? Could be that others know more about it than I do?

I do not think PE comparison is a very wise idea.

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