The price/earnings ratio is a quick and simple way to look at a company’s valuation, and is widely used by private investors.
However, you do have to be careful when you use it. The ratio has several flaws and can be seriously misleading if you don’t use it properly.
In this video, I explain how the ratio works and why it can mislead.
• See also: EV/Ebit – boring title, sexy ratio
Don't miss our next video – click here to sign up to Money Morning now- our FREE daily investment newsletter.See all MoneyWeek videos here.