Value of stock is based on a multiple of earnings. The best indicator of a stock’s value is its P/E ratio which is the stock’s price divided by its earnings. If this ratio is high it means that the stock could possibly be too expensive and is being sold at a premium. You should compare stocks in certain sectors (companies that are in the same line of business) to decide which companies are at a “fair” price and which ones are overpriced.

Answered by Admin - 8 months ago