One of the most prevalent ways, but also the easiest way to screen for stocks is to use the Price Earnings Ratio. It is popular because its so easy to come up with this ratio to screen for “Top 50 cheapest stocks on the stock exchange” or “Top 50 most expensive stocks on the stock exchange”
The mantra is to buy cheap and sell expensive, so if we have something that saves us a ton of time to find cheap stuff, then why not use it??
If using such measure as a valuation is so straight forward then everyone would be making money just by using it. However, not all are.
To me, if you are using metrics like this to assist you in determining valuation, you need to develop a little appreciation of it.
I will go through a bit how I appreciate PE and some stock examples which ......