However, it is important to note that this conclusion is based on two key assumptions. You can think of it like this: the market is suggesting that RADAAN is a weaker business than the average comparable company. This multiple is a median of profitable companies of 24 Entertainment companies in IN including BGIL Films & Technologies, 52 Weeks Entertainment and Eros International Media. This implies that investors are undervaluing each dollar of RADAAN’s earnings. At 12.3, RADAAN’s P/E is lower than its industry peers (25.6). A common peer group is companies that exist in the same industry, which is what I use. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to RADAAN, such as company lifetime and products sold. The P/E ratio itself doesn’t tell you a lot however, it becomes very insightful when you compare it with other similar companies. Price-Earnings Ratio = Price per share ÷ Earnings per share By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings. P/E is a popular ratio used for relative valuation.
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