|By Nathan Young|
May 30, 2017
When looking at stock and their fundamentals, people tend to get held up on the past and use that too much in predicting the future. If you are looking to invest in a company or equity, you want to know how it is going to do in the future.
Next year projected PE is a wonderful data point to consider when you are looking at a new investment opportunity because this can help you to determine the path and health of the company going forward. Knowing where the company is headed is a key metric in the decision making process.
PE ratio, or Price to Earnings, is a tool many people us in their research and is typically expressed as a multiple times earnings. This allows you to see if a company is trading expensive or cheap compared to the competition. Trying to get the best value is critical when investing because you want your money to work for you. Industries such as retail and food have many companies within the same realm and it is important to separate them.
A tip to when you are looking at a stock, be sure to look at the forward image and what the company is going to do in the future. Sure they may be doing well now, but are they able to sustain this path going forward. You need to figure this out before going forward, and next years projected PE can help you in determining this.
You have to watch for certain items such as acquisitions and investments because these can potentially skew numbers. If a company is losing money this year, but it is because they allocated the cash to better themselves for the future, you need to take that with a grain of salt. Of course look back at history and see if it has happened before and if the company reacted well, because it can give you an idea of what to expect.
Overall, this is a very helpful data point and should be kept in your toolbox for future use. Compare PE ratios and looking for projected PE ratios can give you an idea of how the company may do in the future. Be sure not to ignore the others aspects though as this is just one tool of many out there. Find what works best for you and begin to implement in your studies. The Internet is a wonderful tool that can give you insights and tools to help narrow how you utilize this particular data point.