Do people buy stocks for P/E or for price increase ?

[traderwald]

Hi guys,

Do people buy stocks for P/E (price to earnings) or for price increase ?

In other words, what percentage of people invest in shares for the earning profit (resulting from earnings / revenue of the product or service) from the share that result in the dividends (or any other form the such profit from revenue is distributed)

and

What percentage of investors buy it for profit from share price increase ?


Further ,

is there any difference between the profit from revenue and profit from share price increase ?

 

[dozu888]

fundamentals are useless.... figure out where the MONEY is going.

 

[El OchoCinco]

I dont buy shit with PE, I buy shit with money and you don't make money unless the stock price goes up.

 

[notagain]

P/E is one the Joker cards in this three card monte game
Rule 206 4 6 proxy voting is the Queen card

 

[TheBigShort]

A better measure of P/E is EPS Yield (EPS/Price) so you dont get the asymptopes as you approach 0 with P/E.

There are many reasons to look at EPS yield. It is well known that under valued companies out perform over valued companies. One way to gauge value is through the EPS yield. A quant firm might buy 500 of the cheapest stocks on the NYSE and short 500 of the most expensive stocks.

Although fama and French HML portfolio has done pretty bad over the past 10 years (Book value used as the value gauge), Bloombergs value index (also long short) has done much better! Bloomberg uses a predefined blend of cashflow and Eps yield to define value. Blue is famma french HML and Black is Bloomberg value portfolio

 

[wildchild]

Hi guys,

Do people buy stocks for P/E (price to earnings) or for price increase ?

In other words, what percentage of people invest in shares for the earning profit (resulting from earnings / revenue of the product or service) from the share that result in the dividends (or any other form the such profit from revenue is distributed)

and

What percentage of investors buy it for profit from share price increase ?


Further ,

is there any difference between the profit from revenue and profit from share price increase ?

You have only two ways to make money if you are buying stock. Price appreciation and dividends. It doesnt matter how profitable a business is, if the stock price doesnt go up, or if they are not paying out a dividend, you ain't making money.

 

[murray t turtle]

Hi guys,
Do people buy stocks for P/E (price to earnings) or for price increase ?

%% Yes, etrades/trends;
that + dividends+ other reasons. Wisdom is profitable to direct.,,

 

[vanzandt]

Hi guys,

Do people buy stocks for P/E (price to earnings) or for price increase ?

In other words, what percentage of people invest in shares for the earning profit (resulting from earnings / revenue of the product or service) from the share that result in the dividends (or any other form the such profit from revenue is distributed)

and

What percentage of investors buy it for profit from share price increase ?


Further ,

is there any difference between the profit from revenue and profit from share price increase ?

Better to use PEG (PE/earnings growth) and DCF (discounted cash flow).
Here. Read up.

https://www.investopedia.com/terms/p/pegratio.asp
https://www.investopedia.com/terms/d/dcf.asp

For high fliers, use the Rule of 40 and if its below 40, apply the rules above because its a pig.
(They call it the Rule of 50 here... probably a better idea really):

https://venturebeat.com/2015/05/25/the-rule-of-50-how-to-quantify-organizational-success/

 

[taowave]

Im a little confused as to why Earnings yield is a better measure than P/E.

Are you saying if I run a backtest with an Earnings yield filter greater than 10 vs P/E less than 10,I will get different results??

A better measure of P/E is EPS Yield (EPS/Price) so you dont get the asymptopes as you approach 0 with P/E.

There are many reasons to look at EPS yield. It is well known that under valued companies out perform over valued companies. One way to gauge value is through the EPS yield. A quant firm might buy 500 of the cheapest stocks on the NYSE and short 500 of the most expensive stocks.

Although fama and French HML portfolio has done pretty bad over the past 10 years (Book value used as the value gauge), Bloombergs value index (also long short) has done much better! Bloomberg uses a predefined blend of cashflow and Eps yield to define value. Blue is famma french HML and Black is Bloomberg value portfolio
View attachment 217161

 

[TheBigShort]

Im a little confused as to why Earnings yield is a better measure than P/E.

Are you saying if I run a backtest with an Earnings yield filter greater than 10 vs P/E less than 10,I will get different results??

Let's say you have 2 companies

Company A = $20/share with Eps of -$1/share. This gives you a P/E of -20.

Company B = $20/share with Eps of -$10/share. This gives you a P/E of -2.

Without looking at P/E we would prefer company A that is only losing -$1 a share over company B that is losing -$10 a share. However, the P/E tells us that company B is better buy.

Also, P/E gives you extreme values for certain EPS which could cause problems when modelling. Here is a graph of P/E and EPS Yield over a vector of numbers for a $10 stock. You can see that using EPS/Price is a much easier/consistent cumber to use. I hope that helped.