1
BUS500 Case 3
Your Name
Trident University International
BUS500 Financial Intelligence
Due Date
BUS500 Case 3
2
BUS500 Case 3
Remember to always indent the first line of a paragraph (use the tab key) or paragraph
formatting (see below). The introduction should be short (2-3 sentences). The margins, font size,
spacing, and font type (bold or plain) are set in APA format. While you may change the names of
the headings, do not change the formatting or style of font except as specified below. This
template uses Times New Roman 12-point. You may also use: Calibri (11), Arial (11), Georgia
(11) or Lucida Sans Unicode (10).
No quotations are permitted in this paper. Since you are engaging in research, be sure to
cite and reference the sources in APA format. NOTE: failure to use research with accompanying
citations to support content will result in reduced scoring “Level 2-Developing” across the
grading rubric. This is a professional paper; not a personal one based on feelings. It must be
written in the third person; this means words like “I,” “we,” and “you” are not appropriate.
**********NEW DATA AND SCENARIOS ARE USED EACH SESSION**********
If you procure old assignments from students or websites and use the data for your assignment, you will
receive a zero because it is considered a violation of the University’s academic integrity policy. The case
will be referred and become part of your academic record. In certain circumstances, you may be awarded
an F for the course.
If you are taking this class for a second time, submission of past work involving the data sets will result in
a zero for the assignment. Your answers will be wrong since you are working with a different company
and industry.
**********NEW DATA AND SCENARIOS ARE USED EACH SESSION**********
Company Overview
In one paragraph, provide a company background. (Research Required)
Profitability
Company
Assigned Company
Competitor 1
Competitor 2
Competitor 3
Net Margins
Return on Equity
(ROE)
Return on Assets
(ROA)
BUS500 Case 3
3
Source: www.marketbeat.com. Accessed INSERT DATE
Fill in Tables using Data from the “competitors” tab. You will need to run the analysis
for each of the three competitors against the Assigned Company. Define Net Margins, ROE,
and ROA. Compare the categories of the four companies. (Research Required). This section
should be 3/4 page (not including the table).
Valuations & Earnings
Company
Gross
Revenue
Price/Sales
Ratio
Net
Income
Earnings per
Share
Price/Earnings
Ratio
Assigned
Company
Competitor 1
Competitor 2
Competitor 3
Source: www.marketbeat.com. Accessed INSERT DATE
Define the five categories. Explain which stock is more affordable overall and why.
(Research Required). This section should be 1 page (not including the table).
Volatility and Risk
Company
beta
Compared to S&P 500
Assigned Company
Competitor 1
Competitor 2
Competitor 3
Source: www.marketbeat.com. Accessed INSERT DATE
Define beta. Rank the four stocks based on volatility and explain what it means.
(Research Required). This section should be 1/2 page (not including the table).
Analyst Recommendations
Company
Assigned
Company
Competitor 1
Sell
Ratings
Hold
Ratings
Buy
Ratings
Strong Buy
Ratings
Rating
Score
BUS500 Case 3
4
Competitor 2
Competitor 3
Source: www.marketbeat.com. Accessed INSERT DATE
Define Analyst Recommendations. Discuss the consensus price targets of the 4 stocks to
ascertain which is the most favorable with analysts and why. (Research Required). This section
should be 1/2 page (not including the table).
Headlines
Compare the two most recent headlines for the Assigned Company vs. the three
competitors. Connect what is written in the articles with your analysis of the tables above.
(Research Required). This section should be 1½ pages in length.
Conclusion
Add some concluding remarks: 2- or 3-sentence conclusion.
BUS500 Case 3
5
References
Below are some basic rules to follow when creating a reference list:
•
Begin your reference list on a new page.
•
The word References should be centered and bold at the top of the page.
•
Double-space your reference list.
•
For each author, list the last name first followed by the initials for their first and middle
names.
•
Arrange your reference list alphabetically by the last name of the author.
•
Use a hanging indent after the first line of your citation (Word does this for you). Type
your entry and then click “Paragraph” on the HOME tab to create the “hanging indent.”
APA has a handout for the most common types of references.
3/12/24, 9:58 PM
?
Case – BUS500 Financial Intelligence (2024FEB05FT-1)
? Listen
?
Module 3 – Case
STOCKS AND THE MARKET
Assignment Overview
**Note: Complete Module 3 SLP before Module 3 Case**
Stocks Analysis
In this moduleÂ’s SLP, we learned stock vocabulary and applied it to our Assigned
Company. For this case, we will use what we learned and compare it with
competitors.
Case 3 Resources
The Definitive Guide: How to Value a Stock (2022)
The 4 Basic Elements of Stock Value (2021)
How to Research Stocks (2021)
Valuing stocks: Why investors should look harder at expectations (2021)
HereÂ’s What Causes a StockÂ’s Price to Go Up or Down (2021)
Consensus Estimate (2021)
Alpha vs. Beta: What’s the Difference? (2021)
General Online Textbooks
For background on general concepts.
Financial Accounting (OpenStax) (2020) Undergraduate Text
Accounting in the Finance World (2020) MBA Text
Case Assignment
Comparing Stocks
Please continue with the DATA AND SCENARIOS file.
Company Overview
In one paragraph, provide a company background. (Research required.)
Profitability
Fill in Tables using Data from the “competitors” tab. You will need to run the analysis
for each of the three competitors against the Assigned Company.
Company
Net Margins
https://tlc.trident.edu/d2l/le/content/209094/viewContent/5245001/View
Return on Equity
Return on Assets
(ROE)
(ROA)
1/3
3/12/24, 9:58 PM
Case – BUS500 Financial Intelligence (2024FEB05FT-1)
Assigned Company
Competitor 1
Competitor 2
Competitor 3
Source: www.marketbeat.com. Accessed INSERT DATE
Define Net Margins, ROE, and ROA. Compare the categories of the four companies.
(Research required.). This section should be ¾ page (not including the table).
Valuations & Earnings
Company
Gross
Price/Sales
Revenue
Ratio
Net Income
Earnings per
Price/Earnings
Share
Ratio
Assigned
Company
Competitor 1
Competitor 2
Competitor 3
Source: www.marketbeat.com. Accessed INSERT DATE
Define the five categories. Explain which stock is more affordable overall and why.
(Research required.). This section should be 1 page (not including the table).
Volatility and Risk
Company
beta
Compared to S&P 500
Assigned Company
Competitor 1
Competitor 2
Competitor 3
Source: www.marketbeat.com. Accessed INSERT DATE
Define beta. Rank the four stocks based on volatility and explain what it means.
(Research required.). This section should be ½ page (not including the table).
Analyst Recommendations
https://tlc.trident.edu/d2l/le/content/209094/viewContent/5245001/View
2/3
3/12/24, 9:58 PM
Case – BUS500 Financial Intelligence (2024FEB05FT-1)
Company
Sell Ratings
Hold Ratings
Buy Ratings
Strong
Buy Ratings
Rating Score
Assigned
Company
Competitor 1
Competitor 2
Competitor 3
Source: www.marketbeat.com. Accessed INSERT DATE
Define Analyst Recommendations. Discuss the consensus price targets of the 4
stocks to ascertain which is the most favorable with analysts and why. (Research
required.). This section should be ½ page (not including the table).
Headlines
Compare the two most recent headlines for the Assigned Company vs. the three
competitors. Connect what is written in the articles with your analysis of the tables
above. (Research required.) This section should be 1½ pages in length.
No quotations are permitted in this paper. Since you are engaging in research, be
sure to cite and reference the sources in APA format. NOTE: Failure to use research
with accompanying citations to support content will result in reduced scoring “Level
2-Developing” across the grading rubric. This is a professional paper, not a personal
one based on feelings. It must be written in the third person. This means words like
“I,” “we,” and “you” are not appropriate.
Assignment Expectations
Use the attached APA-formatted template (BUS500 Case3) to create your
submission.
The template is set up in APA 7: double-spacing, font, margins, headings, page
breaks, APA help links.
Your submission will include:
Trident University InternationalÂ’s cover page
A paper with APA citations (2- or 3-sentence introduction, 4½-page body (not
including tables), 2- or 3-sentence conclusion)
The reference list page in APA format
Privacy Policy | Contact
https://tlc.trident.edu/d2l/le/content/209094/viewContent/5245001/View
3/3
3/12/24, 8:50 PM
The Definitive Guide: How to Value a Stock | The Motley Fool
Investing > How To Invest > Stocks > How To Value Stock
The Definitive Guide: How to Value a
Stock
Learn the primary metrics investors use to value a stock.
By Robin Hartill, CFP – Updated Nov 13, 2023 at 11:31AM
Accessibility Menu
Arguably, the single most important skill investors can learn is how to value a stock.
Without this proficiency, investors cannot independently discern whether a company’s
stock price is low or high relative to the company’s performance and growth
projections.
https://www.fool.com/investing/how-to-invest/stocks/how-to-value-stock/
1/13
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The Definitive Guide: How to Value a Stock | The Motley Fool
Source: Getty Images
What is a stock?
A single share of a company represents a small ownership stake in the business. As a
stockholder, your percentage of ownership of the company is determined by dividing
the number of shares you own by the total number of shares outstanding and then
multiplying that amount by 100. Owning stock in a company generally confers to the
stock owner both corporate voting rights and income from any dividends paid.
The cornerstone stock valuation metric is the
P/E ratio
The most common way to value a stock is to compute the company’s price-to-earnings
(P/E) ratio. The P/E ratio equals the company’s stock price divided by its most recently
https://www.fool.com/investing/how-to-invest/stocks/how-to-value-stock/
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The Definitive Guide: How to Value a Stock | The Motley Fool
reported earnings per share (EPS). A low P/E ratio implies that an investor buying the
stock is receiving an attractive amount of value.
As an example, let’s calculate the P/E ratio for Walmart (WMT 1.24%). For its fiscal
year that ended Jan. 31, 2023, Walmart reported diluted earnings per share of $4.27. At
the time of this writing in April 2023, the company’s share price is $151.73.
To obtain Walmart’s P/E ratio, simply divide the company’s stock price by its EPS.
Dividing $151.73 by $4.27 produces a P/E ratio of 35.53 for the retail giant.
https://www.fool.com/investing/how-to-invest/stocks/how-to-value-stock/
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Why assign values to stocks?
A stock’s intrinsic value, rooted in its business fundamentals, is not always the same
as its current market price — although some believe otherwise. Investors assign values
to stocks because it helps them decide if they want to buy them, but there is not just
one way to value a stock.
https://www.fool.com/investing/how-to-invest/stocks/how-to-value-stock/
4/13
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The Definitive Guide: How to Value a Stock | The Motley Fool
On one end of the spectrum, active investors — those who believe they can develop and
execute investing strategies that outperform the broader market — value stocks based
on the belief that a stock’s intrinsic value is wholly separate from its market price.
Active investors calculate a series of metrics to estimate a stock’s intrinsic value and
then compare that value to the stock’s current market price.
Passive investors subscribe to the efficient market hypothesis, which posits that a
stock’s market price is always equal to its intrinsic value. Passive investors believe that
all known information is already priced into a stock and, therefore, its price accurately
reflects its value. Most adherents to the efficient market hypothesis suggest simply
investing in an index fund or exchange-traded fund (ETF), rather than taking on the
seemingly impossible task of outsmarting the market.
Using GAAP earnings vs. adjusted earnings to
determine the P/E ratio
GAAP is shorthand for Generally Accepted Accounting Principles, and a company’s
GAAP earnings are those reported in compliance with them. A company’s GAAP
earnings are the amount of profit it generates on an unadjusted basis, meaning without
regard for one-off or unusual events such as business unit purchases or tax incentives
received. Most financial websites report P/E ratios that use GAAP-compliant earnings
numbers.
Non-repeating events can cause significant increases or decreases in the amount of
profits generated, which is why some investors prefer to calculate a company’s P/E
ratio using a per-share earnings number adjusted for the financial effects of one-time
events. Adjusted earnings numbers tend to produce more accurate P/E ratios.
Continuing with the above example, Walmart’s P/E ratio of 35.57 was calculated using
unadjusted (GAAP) earnings of $4.27. The company, in its annual report, indicates its
adjusted EPS for the same period is $6.29. The adjusted EPS figure accounts for
factors such as investment gains and losses, including the gains from the sale of its
https://www.fool.com/investing/how-to-invest/stocks/how-to-value-stock/
5/13
3/12/24, 8:50 PM
The Definitive Guide: How to Value a Stock | The Motley Fool
equity method investment in Brazil, opioid legal charges, and business reorganization
and restructuring changes.
Using this adjusted EPS value, we can calculate Walmart’s adjusted P/E ratio as 24.41 – the result of dividing $151.73 by $6.29.
It’s far better to buy a wonderful company at
a fair price than a fair company at a
wonderful price.
Warren Buffett
What’s a good P/E ratio for a stock?
A P/E ratio that is good for one investor may not be enticing to another. P/E ratios can
be viewed differently by different investors depending on their investment objectives,
which may be more strongly oriented toward value or growth.
Value investors straightforwardly prefer low P/E ratios. A stock for which the valuation
implied by the market is substantially below its intrinsic value is likely attractive to
value investors.
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Growth investors are more likely to buy a stock with a high P/E ratio based on the belief
that the superior rate of earnings growth, if not the absolute value of the earnings
themselves, justifies the high P/E ratio.
How investors can use variations of the P/E
ratio
https://www.fool.com/investing/how-to-invest/stocks/how-to-value-stock/
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Investors, particularly growth-oriented ones, often use a company’s current and past
P/E ratios to calculate two other metrics: the forward-looking P/E ratio and the price-toearnings to growth (PEG) ratio.
The forward P/E ratio is simple to compute. Using the P/E ratio formula — stock price
divided by earnings per share — the forward P/E ratio substitutes EPS from the trailing
12 months with the EPS projected for the company over the next fiscal year. Projected
EPS numbers are provided by financial analysts and sometimes by the companies
themselves.
The PEG ratio accounts for the rate at which a company’s earnings are growing. It is
calculated by dividing the company’s P/E ratio by its expected rate of earnings growth.
While many investors use a company’s projected rate of growth over the upcoming five
years, you can use a projected growth rate for any duration of time. Using growth rate
projections for shorter periods of time increases the reliability of the resulting PEG
ratio.
Continuing with our Walmart example, analysts forecast average annual EPS growth
over the next year of 8.28%. Dividing Walmart’s adjusted P/E ratio of 35.57 by 8.28
produces a PEG ratio of about 4.3. A stock with a PEG ratio below 1.00 is considered
as exceptionally valuable due to its impressive projected growth rate.
However, with any financial metric, it’s important to see how a company compares to
its peers. Walmart has a significantly higher PEG ratio than the overall supermarket
industry average of 1.77.
Related investing topics
How to Invest in ETFs for Beginners
Exchange-traded funds let an investor buy lots of stocks and bonds at once.
https://www.fool.com/investing/how-to-invest/stocks/how-to-value-stock/
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The Definitive Guide: How to Value a Stock | The Motley Fool
How to Invest $1,000
Four figures can produce some great returns if invested in the right places.
Understanding Portfolio Diversification
Spreading your money across industries and companies is a smart way to ensure returns.
Other valuation metrics
Several metrics can be used to estimate the value of a stock or a company, with some
metrics more appropriate than others for certain types of companies.
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Price/sales ratio
Along with the P/E ratio, another common metric used to value stocks is the
price/sales (P/S) ratio. The P/S ratio is equal to a company’s market capitalization -the total value of all outstanding shares — divided by its annual revenue. Because the
P/S ratio is based on revenue instead of earnings, this metric is widely used to evaluate
public companies that do not have earnings because they are not yet profitable.
Stalwart companies with consistent earnings such as Walmart are rarely evaluated
using the P/S ratio. Amazon (AMZN 2.0%) has a history of inconsistent earnings
growth, so despite its massive size, the P/S ratio is a metric investors still prefer to use
to evaluate the online retailer.
Amazon’s market cap at the time of this writing is $1.06 trillion and its fiscal year 2022
revenue was about $514 billion. Dividing $514 billion into $1.06 trillion results in a P/S
ratio for Amazon of 2.06.
Investors who wish to compare the P/S ratios of different companies should be careful
to only compare P/S ratios of companies with similar business models. Across
https://www.fool.com/investing/how-to-invest/stocks/how-to-value-stock/
8/13
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The Definitive Guide: How to Value a Stock | The Motley Fool
industries, P/S ratios can vary greatly because sales volumes can vary greatly.
Companies in industries with low profit margins typically need to generate high
volumes of sales.
Price/book ratio
Another useful metric for valuing a stock or company is the price-to-book ratio. Price is
the company’s stock price and book refers to the company’s book value per share. A
company’s book value is equal to its assets minus its liabilities (asset and liability
numbers are found on companies’ balance sheets). A company’s book value per share
is simply equal to the company’s book value divided by the number of outstanding
shares.
A company’s price-to-book ratio is only marginally useful for evaluating companies, like
software tech companies, that have asset-light business models. This metric is more
relevant for evaluating asset-heavy businesses, such as banks and other financial
institutions.
It’s a (value) trap!
A stock can appear cheap but, because of deteriorating business conditions, actually is
not. These types of stocks are known as value traps. A value trap may take the form of
the stock of a pharmaceutical company with a valuable patent that soon expires, a
cyclical stock at the peak of the cycle, or the stock of a tech company whose onceinnovative offering is being commoditized.
Other relevant factors for valuing a stock
Aside from metrics like the P/E ratio that are quantitatively computed, investors should
consider companies’ qualitative strengths and weaknesses when gauging a stock’s
value. A company with a defensible economic moat is better able to compete with new
market participants, while companies with large user bases benefit from network
effects. A company with a relative cost advantage is likely to be more profitable, and
https://www.fool.com/investing/how-to-invest/stocks/how-to-value-stock/
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The Definitive Guide: How to Value a Stock | The Motley Fool
companies in industries with high switching costs can more easily retain customers.
High-quality companies often have intangible assets, e.g., patents, regulations, and
brand recognition, with considerable value.
As Warren Buffett famously said, “It’s far better to buy a wonderful company at a fair
price than a fair company at a wonderful price.”
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The Definitive Guide: How to Value a Stock | The Motley Fool
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley FoolÂ’s
board of directors. Robin Hartill, CFP® has no position in any of the stocks mentioned. The Motley Fool has
positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.
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The Definitive Guide: How to Value a Stock | The Motley Fool
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The 4 Basic Elements of Stock Value
TRADE
FUNDAMENTAL ANALYSIS
TOOLS
The 4 Basic Elements of Stock Value
By ANDREW BEATTIE Updated February 16, 2022
Reviewed by MARGUERITA CHENG
Fact checked by VIKKI VELASQUEZ
Investing has a set of four basic elements that investors use to break down a
stock’s value. In this article, we will look at four commonly used financial ratios
—price-to-book (P/B) ratio, price-to-earnings (P/E) ratio, price-to-earnings
growth (PEG) ratio, and dividend yield—and what they can tell you about a
stock. Financial ratios are powerful tools to help summarize financial
statements and the health of a company or enterprise.
KEY TAKEAWAYS
Financial statements can be used by analysts and investors to compute
financial ratios that indicate the health or value of a company and its
shares.
P/E, P/B, PEG, and dividend yields are four commonly used metrics that
can help break down a stock’s value and outlook.
Any single ratio is too narrowly focused to stand alone, so combining
these and other financial ratios gives a more complete picture.
Made for glass-half-empty people, the price-to-book (P/B) ratio represents the
value of the company if it is torn up and sold today. This is useful to know
because many companies in mature industries falter in terms of growth, but
they can still be a good value based on their assets. The book value usually
includes equipment, buildings, land, and anything else that can be sold,
including stock holdings and bonds.
https://www.investopedia.com/articles/fundamental-analysis/09/elements-stock-value.asp
Advertisement
1. Price-to-Book (P/B) Ratio
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The 4 Basic Elements of Stock Value
With purely financial firms, the book value can fluctuate with the market as
TRADE
these stocks tend to have a portfolio of assets that goes up and down in value.
Industrial companies tend to have a book value based more on physical assets,
which depreciate year over year according to accounting rules.
In either case, a low P/B ratio can protect you—but only if it’s accurate. This
means an investor has to look deeper into the actual assets making up the ratio.
2. Price-to-Earnings (P/E) Ratio
The price to earnings (P/E) ratio is possibly the most scrutinized of all the ratios.
If sudden increases in a stock’s price are the sizzle, then the P/E ratio is the
steak. A stock can go up in value without significant earnings increases, but the
P/E ratio is what decides if it can stay up. Without earnings to back up the price,
a stock will eventually fall back down. An important point to note is that one
should only compare P/E ratios among companies in similar industries and
markets.
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The reason stocks tend to have high P/E ratios is that investors try to predict
which stocks will enjoy progressively larger earnings. An investor may buy a
stock with a P/E ratio of 30 if they think it will double its earnings every year
(shortening the payoff period significantly). If this fails to happen, the stock will
fall back down to a more reasonable P/E ratio. If the stock does manage to
double earnings, then it will likely continue to trade at a high P/E ratio.
https://www.investopedia.com/articles/fundamental-analysis/09/elements-stock-value.asp
Advertisement
The reason for this is simple: A P/E ratio can be thought of as how long a stock
will take to pay back your investment if there is no change in the business. A
stock trading at $20 per share with earnings of $2 per share has a P/E ratio of 10,
which is sometimes seen as meaning that you’ll make your money back in 10
years if nothing changes. [1]
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The 4 Basic Elements of Stock Value
3. Price-to-Earnings Growth (PEG) Ratio
TRADE
Because the P/E ratio isn’t enough in and of itself, many investors use the price
to earnings growth (PEG) ratio. Instead of merely looking at the price and
earnings, the PEG ratio incorporates the historical growth rate of the company’s
earnings. This ratio also tells you how company A’s stock stacks up against
company B’s stock. The PEG ratio is calculated by taking the P/E ratio of a
company and dividing it by the year-over-year growth rate of its earnings. The
lower the value of your PEG ratio, the better the deal you’re getting for the
stock’s future estimated earnings. [2]
By comparing two stocks using the PEG, you can see how much you’re paying
for growth in each case. A PEG of 1 means you’re breaking even if growth
continues as it has in the past. A PEG of 2 means you’re paying twice as much
for projected growth when compared to a stock with a PEG of 1. This is
speculative because there is no guarantee that growth will continue as it has in
the past.
The P/E ratio is a snapshot of where a company is and the PEG ratio is a graph
plotting where it has been. Armed with this information, an investor has to
decide whether it is likely to continue in that direction.
4. Dividend Yield
It’s always nice to have a backup when a stock’s growth falters. This is why
dividend-paying stocks are attractive to many investors—even when prices
drop, you get a paycheck. The dividend yield shows how much of a payday
you’re getting for your money. By dividing the stock’s annual dividend by the
stock’s price, you get a percentage. [1] You can think of that percentage as the
interest on your money, with the additional chance at growth through the
appreciation of the stock.
Although simple on paper, there are some things to watch for with the dividend
yield. Inconsistent dividends or suspended payments in the past mean that the
dividend yield can’t be counted on. Like water, dividends can ebb and flow, so
knowing which way the tide is going —like whether dividend payments have
increased year over year—is essential to making the decision to buy. Dividends
also vary by industry, with utilities and some banks typically paying a lot
whereas tech firms, which often invest almost all their earnings back into the
company to fuel growth, paying very little or no dividends.
What Is a Good P/B Ratio?
What is considered a “good” or “bad” P/B ratio depends on the industry in
which the company is operating and the overall state of valuations in the
market. Generally speaking, a P/B ratio under 1.0 is considered optimal since it
indicates that an undervalued stock may have been identified. However, some
investors assessing the P/B value of a stock may choose to accept a higher P/B
ratio of up to 3.0.
Again, this depends on the industry of the company in question, but, as rule of
thumb, the lower the P/E is, the better. A good P/E ratio should also be lower
than the average P/E ratio, which is between 20–25. [3]
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What Is a Good P/E Ratio?
What Is a Good PEG Ratio?
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The 4 Basic Elements of Stock Value
In general, a PEG ratio is considered to be good when it has a value lower than
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1.0, suggesting a stock is relatively undervalued.
The Bottom Line
The P/E ratio, P/B ratio, PEG ratio, and dividend yields are too narrowly focused
to stand alone as a single measure of a stock. By combining methods of
valuation, you can get a better view of a stock’s worth. Any one of these can be
influenced by creative accounting—as can more complex ratios like cash flow.
As you add more tools to your valuation methods, discrepancies get easier to
spot. These four main ratios may be overshadowed by thousands of customized
metrics, but they will always be useful stepping stones for finding out whether a
stock is worth buying.
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