When you do trading, we need to know how the way it is running, one thing we should know first is about how to find the low-cost stock. Before we know the price is good or not, we have to know how much the fair price for that, if current price is lower than its fair price then you get the low-cost stock. Low-cost doesn’t mean it has a low value, we can say that 100$ will be low-cost if the fair price is 200$,that price is so much better than the current price, otherwise 1$ stock is more expensive if the fair price is 0.5$ lower than its current price.
An easy way to find a good price is to know how much PE (price/earning) ratio, we have learn more about that. PE ratio is to count the price that we pay for a stock compare to the profits of its company. This is to indicated how much an investor willing to pay for every cent of money of its profits. A higher PE ratio means that an investor is paying more on profits. The price per share (numerator) is the market price of one stock in one time, and The earnings per share is an indicator of the company’s profitability, it is a portion of a profit that is allocated to an outstanding share in a common stock, it also assumed that earning per share (denominator) is the net annual income of the company divided by number of shares outstanding.
Pe ratio is used by an investor to compare the value of a stock. Usually stocks with high earning growth traded in a higher P/E values. Generally, the greater the earnings growth the better. It is a key value that is used for stock valuation.
Another way to find a cheap stock is to know its PEG (price/earnings to growth) ratio. It is used to determining the relative trade-off between the price of a stock. PEG ratio is the company’s expected growth. A lower PEG ratio is better and higher is a reverse. Usually PEG ratio more than 2 is too high and it is not quite good, it is believes that the price paid is to be much higher compare to the projected earnings growth. If annual company’s growth reaching 30% then the PE ratios need to be in 30 so it will reach PEG ratio 1. A fair value of PEG ratio need to be 1 or 2 it is considered as a normal value. Its a quite difficult to define the projected growth rate and off course it will be wise enough to use A reasonable growth rate, the first thing we need to know when you count a reasonable rate is to check company’s earnings quarterly, we have to check earnings from the same quarter in a last year.
PEG ratio is a common way to use for a large, high growing company, well established company. As an example it may offer dividend income with a low growth. Dividend will affect the price & PEG ratio. PEG ratio is used as an indicator for a stocks that has a potential value. PE ratio & PEG ratio has the same indicator, a lower PEG means that the stock is undervalue. And one thing need to be notice that the number is an estimate growth, and sometimes estimate is not accurate