Hi all possibly a stupid question but is a low p/E ratio better than a high value p/E ratio when looking at the financial health of a stock Ian considering for dividend investment when taken in to account next to assets Vs liabilities and
The P/E ratio indicates how much investors are willing to pay for each $/£/€ of earnings a company makes.
A low P/E ratio is normally a good thing because it represents the share being at a bargain price.
A high P/E ratio is normally a feature of companies which are expected to have big growth in the future.
So when considering a dividend investment is low P/E ratio is a good thing but you should be careful as a low P/E ratio can is also feature of a “Value Traps”
Another thing to consider is that there are P/E Ratios that are considered industry standard. so the Tech industry has a different P/E average/standard than say the beverages industry.
So it’s no good if the P/E looks low, but is actually quite high compared to the rest of its industry and you don’t want to avoid a stock with a large P/E that is actually lower than its industry peers.
Typically a High P/E is a sign the stock may be overvalued, but this may not always be the case as the next earnings report might be just around the corner and reveal that the stock is actually rather fairly valued for its updated earnings.