These are the 3 main valuation tools that people use when trying to quantify the value of a stock. But people have been applying the wrong tools to the wrong type of stock.
For example, if you apply P/E to Olam or Capitaland (during certain years) and the stock looks ridiculously cheap which may result in you buying the wrong stock and the wrong time.
P/E – (Price to earnings)
It can be seen as how may multiples are you willing to pay for one years worth of earnings (earnings per share). This is the most widely used multiple which is used for companies with constant earnings, which can be found by seeing whether your stock falls under any of the 3 categories below
- make money by selling inventory
- Has a ‘moat’ in a mature industry
- provide constant services
Make money by selling inventory
This is probably the easiest way …