Market Value Ratios and How Traders Can Use Them

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Learn how market valuation ratios are important for stock investors to value companies.

A high P/E ratio could imply that the stock is more richly valued because investors are paying a higher price for each dollar of the company’s earnings. This may also display investor confidence in that the higher price reflects expected increases in future earnings, or

A high or low yield can be interpreted depending on the company and relative industry. Mature companies may not have the same growth potential as a younger, fast growing company. So, in turn, some mature companies may display higher yields as opposed to lower yields from younger companies. It’s important to note that share price itself is not necessarily indicative of company size. If XYZ corporation had a $50 share price but a $2 billion valuation, it would be smaller than ABC corporation with a $20 share price and a $10 billion valuation. ABC would fit the description of large cap, while XYZ would be considered a mid-cap stock.This merely looks at the value of the stock at that particular moment in time, and has little leading quality.

 

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