Say a company makes 200mil and sells at 2bil. P/E is at 10X. Now imagine this company going through a tough time. Earnings fall to 20mil and the company sells at 500mil. P/E now stands at 25X.
I see this happening often with cyclicals. Heck, for companies with negative earnings, it almost signifies an infinite (undefined) P/E ratio. In most cases where I find companies with P/E ratios below 5, there's almost always a good reason for it to be so.
P/BV as a metric to find value companies as such works better in my experience. I use P/BV alone for distressed companies, and P/BV in conjunction with ROE to find companies priced cheaply relative to their growth potential.
Submitted September 14, 2017 at 08:04AM by learner1314 http://ift.tt/2wYrQFj
