Why do new investors gives so much importance to P/E ratio? 🤨

What is a P/E ratio?

P/E ratio which is known as the Price-to-Earning ratio tells us earning Re.1 how much an investor is willing to pay.

Most retail investors like feel that if a particular Company’s P/E is low than its Industry P/E, it would be good to buy the stock and sell when the P/E is higher.

P/E is an important ratio and its necessary while valuation of the company. P/E ratio helps us know the value that the Company holds. The problem with the P/E ratio is that it is majorly affected because of the sentiment, both positive and negative.

The numerator part P (Price) is not questionable while the denominator E (EPS - Earning per share) is on the historical performance of the Company. To make money in the markets you don’t pay for what has happened in the past but, you pay for the future of the company. P/E is an important metric but only if it is used with other ratios altogether.

If a particular company’s P/E ratio is high but has the moat, a considerable amount of market share, and competitive advantage buying their share would still be a deal for you. :money_with_wings:

What are your thoughts on this?