Is there any hard and fast rule that Higher (lower) the P/E, P/B, P/S, and P/CF ratios the better (worse) the company is as compared to whatever it is been compared to?? Thanks in advance.
If I understand correctly the answer would be they have to be as low as possible. low p/e - means payback period is little low p/b - means that the company is undervalued rather than overvalued low p/s - means that company is generating high income compared to capitalization low p/cf - means that company is generating a lot of cash flows compared to capitalization
It’s all relative, but the basic idea is above. A low P/S may be due to low margins, and vice versa. So I would say there is no one answer to this, just that it has to be looked at case by case.
I suggest reading A.Damodaran “Investment Fables”… of course, after the june exem! Milos
Thanks guys. That helps a bit but I am still not getting the bottom line here.
If I am not putting the question right then I am asking in the case of comparables method. Thanks
anishcandy Wrote: ------------------------------------------------------- > Is there any hard and fast rule that Higher > (lower) the P/E, P/B, P/S, and P/CF ratios the > better (worse) the company is as compared to > whatever it is been compared to?? > > Thanks in advance. …double check this since I typed it quick, but I think this is what you are after: When comparing two securities with similar risk and growth prospects… If security A has a higher (lower) P/E, P/B, P/S, and P/CF then security A is overvalued (undervalued) in relation to security B. If security A has a higher (lower) E/P or D/P then security A is undervalued (overvalued) in relation to security B.
@ Slouiscar: Yes, that is what I am trying to confirm here. So What you said is always true?
all things being equal… I think if: Multiple w/ the price in numerator: multiple too high – the price is too high – security overvalued Multiple w/ the price in denominator: multiple too high – the price is too low-- security undervalued