If you are a good and experienced investor, you should know that the PER is one of the most used parameters to know if the financial markets are they expensive or cheap. Therefore, it will be a particularly effective piece of information for your operations on the stock market. Among other reasons because it will give you the most appropriate prices to take positions in the values of the main ones stock indices. In addition, it will be part of an investment strategy that will help you make as few mistakes as possible. As a very useful protection measure for your personal interests.
Another of the relevant aspects of the PER is the one that refers to the real meaning of these acronyms that you will have heard on more than one occasion. Well, they are the initials in English of Price Earnings Ratio and whose literal translation is between price and profit. In other words, it measures the real situation that stocks are going through in the equity markets. Not surprisingly, it will determine the number of times that the profit is included in the share price. With a wide difference between one and the other values and that will serve to compare the status of the shares that you want to buy from now on.
So that you can understand what the PER is, nothing better than knowing another meaning that derives from the result between the listed price between the net profit. It will give as a product the ratio of the selected stock values. However, it is not a data that is always static. If not on the contrary, and as an example, a listed company with a low PER may actually mean that the stock is undervalued and it could increase its price in the short and medium term. And quite the contrary, with a high PER it can mean that it can be revalued within a period of permanence of the same characteristics as in the previous case.
Sell or buy with the PER?
Of course, other aspects that you should assess with this important stock market parameter is whether it is valid to enter or exit the financial markets. From this general scenario, do not doubt that a PER high, It does not necessarily mean that the shares are very expensive, or are overvalued. It may depend on the specific moment through which the shares pass since not all shares are always worth the same. A little trick to delve into this topic is to compare the selected value with that of other companies in the same sector. It will be a much more effective strategy for determining the stock price.
On the other hand, the PER is a very determining value so that you value what are the main advantages and disadvantages of investing in a company. Through a very simple analysis to put into practice and unlike other investment strategies. In this sense, you cannot forget from now on that the aforementioned Price Earnings Ratio It is another way to invest your savings with greater security and above other systems that tend to be much more complex in their analysis models. Don't forget it if you don't want to make mistakes from this moment on.
How to calculate the PER?
Although the PER is a very important parameter for users who operate in equity markets, it is also true that sometimes there are certain difficulties in obtaining this data. That is, we do not know the amount that may correspond to these acronyms and in this way we are losing very important information to make investments from now on. In this sense, it should be mentioned that the calculation of the PER ratio is much simpler than it may seem at first glance. Because in effect, it is a operation that is very easy to calculate as it is derived from performing a simple mathematical division. Where it is only necessary to divide the market capitalization of a company by its net profit. In this way, therefore, you will be in front of this information that you can use at any time to formalize an operation in the financial markets.
Of course, the PER is more important than what appears at first glance in this division operation. Not in vain, he will be offering you one more than vision evaluation of the financial situation of the company in terms of price, shares and evolution in the market. Neither more nor less, so that you are in perfect conditions to execute your decision on any index or financial asset. However, it is in the stock market where its utility is greater since there are many small and medium investors who take this point of reference to reinforce their decision. Together with other figures of technical analysis that will give you more security in the positions that you are going to open from these precise moments.
Advantages in using PER
There is no doubt that this relevant stock market ratio carries a series of advantages at the time of investment. One of the most important is the one referred to as essential data when evaluating a company. In any case, above others that until now are used quite frequently on your part. On the other hand, another of the effects that it can generate from the first moment is that it can give you a more or less approximate idea about the degree of undervaluation or overvaluation of the listed company. Of course, this is very important since it will be one of the first filters before making purchases in the financial markets.
Of course, other of the most tangible benefits in its use derive from the fact that its calculation is very simple and is accessible to any investor profile. To the detriment of others that require much more complex arithmetic operations and that you even have certain difficulties in detecting their movements. In addition, the main financial or stock information websites usually calculate this ratio automatically, so normally we will not even have to bother to find it. In a few minutes you will have this important information to use in your next operations on the stock market.
Disadvantages of this ratio
On the contrary, and although it may surprise you a bit, the PER also has a series of disadvantages that you should know about right now. To begin with, it is not a particularly effective system for analyzing cyclical companies in the sector. For a reason that is very easy to understand and that is based on their price, they develop according to the economic cycle in which they are immersed. To the point that the PER can provide you with a somewhat distorted data of reality and can confuse you in the required objectives through this business ratio. On the other hand, you cannot forget that these amounts can be seen as victims of a accounting manipulation. With which, the data will not be of great use to defend your closest interests.
Within this section, the fact that this ratio must be supplemented through other figures or parameters in the technical analysis is also particularly relevant. In this sense, you should not exercise a primordial posture, far from it. This is something that you have already gone through on more than one occasion. With some other mismatch in the values selected from this investment strategy. Because at the end of the day it is not an infallible system, as some profiles of small and medium investors may believe. Although anywhere, it is one of the most reliable that you have on hand.
Impact on technical analysis
Of course, the PER is very important and the debt levels are just as important. There are financial ratios that explain the capital structure of the companies that you want to analyze. Beyond other technical and even fundamental considerations that it can offer you to the analysis of the actions that are the object of your study. This is one of the reasons why you need deepen the analysis of that financial asset. Not surprisingly, you cannot forget that we are talking about something as important as the investment of your money. And in this sense, they are not worth any kind of improvisation. If not, on the contrary, your decisions must be based on a very exhaustive analysis of the real situation in which the shares are at that time.
Finally, nothing more important than assessing precisely what the PER is in the stock market sector. Neither more nor less so that you do not get the odd surprise along the way and in this way you are in a better position to make profitable your operations in the equity markets. Which is at the end of the day what it is, as you already know very well. Not in vain, you can earn a lot of money in each of the stock operations, but also leave you many euros along the way. Where one of your objectives will be to give greater protection to your open positions on the stock market.