How to use stock ratios to predict the future

Depending on the nature of the stock, you need to pick the right ratio to see whether it's cheap or not, says Tim Bennett. Here, he explains some of the most popular ratios.

If you have even the slightest interest in investing, there's one number that you're almost certain to have encountered: the price/earnings (p/e) ratio. It's little wonder it's so widely quoted it's easy to calculate and it seems to offer the Holy Grail of investing: a single number that reveals whether a share is cheap or expensive. But be careful. While the p/e can be useful, used in isolation it can lead you to make bad investment decisions. Here's why, and what you can do about it.

The recipe

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.