SAFAKNA TURKEY – One of the things to consider when buying stocks is whether they are cheap or expensive. To get an idea of this, let’s look at some relationships. The price/earnings ratio (P/E) is one of them. P/E is a valuation ratio used to measure a stock’s price relative to its earnings. It is calculated by dividing a company’s share price by earnings per share. In other words, it expresses the price that investors are willing to pay for 1 unit of profit provided by shares.
If this ratio is low, it can be interpreted as “cheap” and high as “expensive”. However, keep in mind that this conclusion cannot be drawn by looking at the P/E ratio alone.
Significant long-term gains can be made from the stock of a high P/E company that has a history of growth and is investing.
Market cap to book value ratio (PD/DD) is another indicator that can give you an idea of whether a stock is cheap or not.
This ratio is calculated by dividing the market value by the book value. However, it is impossible to predict the future of stocks by looking only at the PD/DD ratio. Additional criteria must be considered when interpreting the PD/DD ratio. The value 1 is taken as a reference value when interpreting the PD/DD ratio.
In other words, the interpretation of PD/DD is based on whether the result is greater than or less than 1 when dividing the company’s market value by its book value. A ratio greater than 1 indicates that the company’s shares are overvalued compared to its financial performance.
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