Three p/e ratio bear-traps to avoid - MoneyWeek Investment Tutorials

[@Gaurav-lw2gs]

Video Summary: Hunting down for Low P/E ratio in general means buying when others are fearful. However Low P/E ratio does not tell you anything about risk that you are buying! Value Investor Warren Buffet says: P/E < 10: Under priced P/E 15: Fair price P/E >20 : Overpriced P/E > 30: Extreme bubble Remember 15 is Fair! P/E ratio does not give you full picture. 3 bear traps with Low PE ratio: 1. Far from being cheap (Say at low daily RSI < 30) That stock could be risky as debt cannot be deduced from P/E ratio. 2. Low P/E with low Market Cap (say Market cap 1 M) is more risky to buy than one with low PE with High Market cap (Say Market cap 1 B) 3. Low PE with Low PEGR (Price earning growth rate) stocks may not perform well, so avoid them. Eg. PE ratio of 10 and 20 then look at their Price Earning growth rate (PEGR). Say P/E 10 has PEGR of 10% Vs P/E 20 has PEGR 50% you need to buy the one with Higher PEGR. P/E Algo: First pick stocks with Low P/E ratio ie. under 20, then look for Daily RSI under 30 or price close to 4h 200 EMA. Next exclude companies with low market cap ( less than 10 M?). Next exclude companies with low PEGR that is less than 10%. The companies you have left are companies for value investing : Low PE+ Oversold Daily RSI+High Market Gap and High PEGR

[@ballisticworm9525]

One thing that always comfused me was a -p/e ratio. Sounds bad as they have negative earnings. Also, I thought it was funny to read p/e > 30 is a bubble. The entire tech sector looks sketchy as hell by that metric. But I know you gotta use other metrics for company health and potential.

[@ski808]

Thanks for elaborating with the P/E algo. What would be your steps in identifying appropriate stocks when the market structure is in a down trend? Let's remove shorting stocks for argument's purposes. Thanks in advance if you're replying.

[@KevinFlowersJr]

Gaurav Nigam MD, there's something a bit off with your summary in 3. That is, on Investopedia's article on PEG ratios, "The degree to which a PEG ratio result indicates an over or underpriced stock varies by industry and by company type. As a broad rule of thumb, some investors feel that a PEG ratio below one is desirable." That's also what Bennett is saying at 6:07 that "The one on the right is *cheaper* in earnings growth terms, than the one on the left." From the same Investopedia article on PEG ratios, "According to well-known investor Peter Lynch, a company's P/E and expected growth should be equal, which denotes a fairly valued company and supports a PEG ratio of 1.0. When a company's PEG exceeds 1.0, it's considered overvalued while a stock with a PEG of less than 1.0 is considered undervalued." Like almost everything on the internet regarding finance, this shouldn't be taken as investment advice, and you should read more about this topic yourself before making any financial decisions (or consult a financial advisor if you can afford it).

[@MrNavinaveen]

you have a simple and easy way to explain things... thanks...

[@MagnaCartaTwo]

I always found it easier to discuss than to discus.

[@MagnaCartaTwo]

I must admit, sometimes I did struggle with P/E lessons at school.

[@RexTube1991]

The stock I have now has PE ratio of 900.

[@rubenk8273]

Tesla P/E ratio is over 1800 right now 😂 speaking about bubbles..

[@MikeDubya]

Beautiful explanation! Great video Tim, thank you!

[@Brsrafal]

The best p e video im new to this u summed it perfect

[@sergeyshkurynskyy6944]

Regarding caveat #3 -- isn't earnings growth rate indirectly captured in the stock price of a security, which is something that an ordinary P/E ratio includes?

[@abhinavitsmebellamy]

Excellent video. Thanks Tim!!

[@OmyTrenav]

Great explanation for non-experts. Thanks!

[@AlexandarTheGreat]

God bless you Tim.

[@cia9288]

Great videos!

[@szaki]

Hehe! Netflix p/e is around 160x and the stock still climbing up!

[@vinay5047]

That's what you call 'Irrational Exuberance'.

[@schopen-hauer]

good short

[@jakez3171]

Overvaluations will come to haunt you sooner or later.

[@carlavv5302]

I hope you got it 7y ago. Massive Run

[@midnick2159]

Tim is savvy.

[@Snowy123]

Do you like pe or ev/ebit more?

[@nobertstanel9428]

Thank You !

[@etsirtle]

thanks

[@n8style]

lol

[@pl5420]

So if a compnay has a P/E:21, $320mil net Rev outlook for 2019, $200mil assets, $40mil cash, $0 debt, and $500mil market Cap, EBITDA $15mil and trading around $6. Would this be a good buy?

[@gabrielgnaegi5156]

I'll say look at the PEG and make 1 or 2 comparison with competitors if any. Worth your 15min if you make it right

[@NicosMind]

Tim i love your videos. You make everything seem so easy. Been studying economics for the past 6 years and im quite happy with my knowledge. I dont know what you call all of this p/e ratios etc, but i think of it as stock or business analysis. Once i get a good grip of this i wouldnt mind learning some technical analysis as well and know how to read a chart well. But just to give a little back the keynesian and monetarist interpretaion of the GD is all wrong. Ive bought quite a few (continued)

[@marossi]

I found a company with 10+ billion net profit with a pe of 3. Is that good?