I tend to agree with the above statement, as valuation, in itself, only captures a snapshot of the company at a specific point in time.
Simply put, if a company is trading at lofty valuations, we may consider avoiding it or sizing it smaller within our portfolio to minimize risks. A simple example would be a company with an EPS of S$0.10 and a share price of S$1.00. Its PER would thus be 10 times .For instance, you could compute the PER of five electronics companies to assess which is the cheapest of the lot.First off, earnings could be affected by a myriad of factors such as write-offs, impairments or one-time adverse events such as the current pandemic.
Such practices, while not illegal, do end up distorting the EPS figure and may not paint an accurate picture of a company’s financial health. Price to free cash flow, or PFCF, is computed by taking the share price and dividing it by the free cash flow per share. Price to book value A third method that can be used to value a company is the price to book ratio, or PB.
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