{"id":3057,"date":"2018-10-17T09:00:27","date_gmt":"2018-10-17T03:30:27","guid":{"rendered":"http:\/\/capitalante.com\/?p=3057"},"modified":"2019-05-11T23:48:47","modified_gmt":"2019-05-11T18:18:47","slug":"how-to-use-price-to-earnings-ratio-to-pick-stocks","status":"publish","type":"post","link":"https:\/\/capitalante.com\/how-to-use-price-to-earnings-ratio-to-pick-stocks\/","title":{"rendered":"How to use Price to Earnings Ratio to Pick Stocks"},"content":{"rendered":"

Investors are always in search of such companies or stocks which may give them a \u00a0multibagger<\/g> return in the future<\/g>. They use several parameters at the time of selecting such stocks. The price-to-earnings-ratio or P\/E ratio is a vital and useful metric among investors. Here we will understand the P\/E ratio and how to use Price to Earnings ratio to pick stocks <\/strong>which may yield multibagger<\/g><\/g> return in the future<\/g>.<\/span><\/p>\n

What is Price-to-earnings Ratio<\/span><\/strong><\/span><\/h6>\n

Let\u2019s assume, a company has a net income of $10000 per year. It Pays $5000 in preferred<\/g> dividend to investors. It has 50 shares outstanding. <\/span><\/p>\n

\"Earning<\/a><\/p>\n

Now, if the stock currently trades at $1000,<\/g> then<\/span><\/p>\n

\"Price<\/a><\/p>\n

So, a holder of single share or stock will receive a dividend of $100.<\/span> Therefore,<\/g> the dividend yield percentage\u00a0 =\u00a0 $100 \u00d7 100%\/$1000\/-<\/u> \u00a0\u00a0\u00a0 = 10%.<\/span><\/p>\n

So, you have earned a 10<\/g>% return on your investment of $1000 in stocks.<\/span><\/p>\n