3 ms·
way lower PE ratio is not a good thing for a stock
by wwtrv 4y ago
way lower PE ratio is not a good thing for a stock
- FredPret 4y agoOf course it almost always is. Would you rather buy a McDonalds that makes $1m a year for $5m, or for $1m? A higher PE only makes sense if a business’s profit is poised to expand significantly beyond doubt. Which it almost never is.
- wwtrv 4y agoI meant that a high PE indicates that investors have a high confidence in the company. Preferring to buy stock with a low PE is (usually) a contrarian position, i.e. you would only do so if you believe that the company will do better than the market expects it to. You might be right or it might end up being a value trap. If someone is selling a McDonalds that makes $1m a year for $5m and somebody else selling one with the same revenue for $1m either one of the seller is behaving irrationally or the second seller knows something you don't. Why would somebody give you free money otherwise?