3 stocks with high P/Es worth considering

Financial journalist and commentator on 3AW and Sky Business
Print This Post A A A

The price/earnings (P/E) ratio (or multiple) is a crucial figure for many investors, who see it as a ready gauge of value – the lower the P/E, which is calculated by dividing the share price (in cents) by the earnings per share (EPS), in cents – the better the value of the stock price relative to its earnings.

But this is not an exact method of assessing value.

While a high P/E ratio can certainly indicate that a stock is expensive, it can tell you that professional investors are prepared to value the company more highly because they respect the earnings growth rates the company has been able to achieve. Conversely, a low P/E ratio could be an indicator of poor performance by the company – and that the stock could be a “value trap,” where the low P/E looks attractive, but the price keeps falling.

Also from this edition