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FoundationsStock Alerts + Tools0:46Valuation

Cheap Is Not a Number

A P/E is a ratio of price to one year of profit. It tells you what is being paid, never whether it is worth it.

0:46 · 6 scenes

This lesson is part of a Stock Alerts + Tools plan.

What the lesson covers

  1. 0:00A low price-to-earnings ratio does not mean a stock is cheap.
  2. 0:05What it says. How many dollars you pay for one dollar of last year's profit. That is all.
  3. 0:14Why low can mean danger. The market prices the future. A low multiple often means it expects profit to fall.
  4. 0:24The value trap, arithmetically. Price falls twenty percent, earnings fall fifty, and the multiple goes up.
  5. 0:33How to use it properly. Compare it against the same company's history and its actual peers.
  6. 0:41Ask what the market expects, not whether the number is small.
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Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Cheap Is Not a Number — MAD Academy Training Video · MadStockAlerts