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Investors often use the price earnings, or P/E ratio, as a way to gauge the relative value of a stock in relation to its peers. It is the market price of a share of stock relative to its earnings per share. “The more positive investors feel about a stock’s future prospects, or the less risk they feel the stock has, the higher the stock’s P/E ratio” (Keown, 2016, p. 414).
Other investors view a low P/E as a ‘value,’ meaning the price paid for the stock is less relative to the earnings generated by the firm itself.
Select four stocks of your choice that are diversified across four different sectors or industries. Research each stock using Mergent Online. Written instructions and a video found here: Mergent Online Instructions
In your initial post, label your selected stock as “choice,” the competitor stock as “peer,” the industry information as “industry,” and list the P/E ratio for each of these categories.
Comment on your findings. Based on the P/E ratio, do you believe your choice stock to be fairly priced, a ‘value,’ or overpriced as compared to a peer and the industry as a whole? Why?