a few days back I did a story asking are Indian shares expensive – and I said please look at the American markets..they look cheaper.

Similarly I have been a big critic of talking of a MARKET being high or low. You have to keep looking at the components of the market..some are always expensive and some are real cheap.

I have used many measures in the past – cash to price, price dividend ratio, p/e ratio, …etc. There is nothing ‘untouchable’ about these ratios. However if people do not know how to use p/e there is a big hassle. P/e is easy to calculate, and believe me it is very, very difficult to decide how to use it. In the same market 2 accountants can calculate p/e differently – one deciding to use operational profit and the other using net profit. Even using profit before tax and profit after tax can take you to DIFFERENT results.

So just use a different definition for calculating the EARNINGs -and tweak the results to your liking!

Here is a Wall Street Journal (wsj) article telling you why p/e based decisions can be different…

 

 

http://online.wsj.com/article/SB10001424053111904491704576573241520154756.html?mod=sf2tw

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  1. Subra
    I don’t know about the stock market, but if you use the price-rent ratio( after deducting maintanence & property tax), Indian real estate is very expensive compared to Bahrain. For an equivalent purchase price, you can get a much better apartment here, and the rent is 5 to 6 times the average Indian rent rate.

  2. Completely agree with Dr Khan. Real estate in India is very, very expensive – for the price you pay for a 2 bedroom flat you can get a palatial house in many places in the world.

  3. Yes, P/e is very funny. You also have trailing & forward. And then you can have many variants on earnings including standalone & consolidated etc. Needs careful utilisation.

  4. I prefer to look at market cap and think that is the best indicator! Ofcourse, I also look at EBIT, ROCE, yoy growth, debt position before investing in a scrip.

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