P/E ratio-The Price to Earnings ratio of a company is an important parameter which can determine the future price of a stock and it must be studied very carefully before any stock purchase.It can be calculated by dividing the current stock price of the company by the earnings per share over the last four quarters.Basically it shows the number of dollars an investor is ready to pay per dollar of earning of the company.For example if the P/E of a company is 25,that means an investor is ready to pay 25$ for 1$ earnings of the company.A high P/E ratio indicates that the company is earning at a high rate.But for Indian companies a P/E above 12 can be dangerous.
Price to book ratio-This can be calculated as the price of a stock
in the market divided by the deserved price.It shows whether a stock is underrated or overrated .If the ratio is less than 1,it indicates that the stock is undervalued .Such stocks seem attractive as their value is expected to increase.But a lower value of the ratio also indicates that the company is not fundamentally sound.There should be a thorough study of this factor before any investment..
ya these are few of the important technical parameters while judging a stock.....But it is not always that a High P/E stock is having high earnings...A high P/E might indicate that company is overrated or overbought as compared to its significant peers......
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