Key Points
Because it is easy to calculate and understand the valuation ratios, the PE ratio often acts as an anchor when investors are making investment decisions..
Given the huge difference in what is value and what looks cheap due to one financial ratio, more often than not, relying on PE may lead to wrong investment decisions...
The PE ratio is one of the most overused and misused ratios..
It is better to use the PEG ratio when looking for long-term investment, though finding the right ratio is itself a challenge..
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26, Jun, 23PE ratio often acts as an anchor when investors are making investment decisions. The reason it is easy to calculate narrative has been going in the market for ages that it lower the PE, cheaper the stock. Given the huge difference in what is value and what looks cheap due to one financial ratio, more often than not, relying on PE may lead to wrong investment decisions.