Business Investment Interview Question:

Suppose Common practice to evaluate P/E ratio to determine if a stock is cheap. If you had no comparable companies for a stock, how can you evaluate if a stock is cheap?

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The inverse of the P/E is the earnings yield of the company. You can compare the earnings yield to fixed income yields and/or dividend yields to get a feel for how cheap the stock is. So a P/E of 50 can be interpreted as an earnings yield of 2%, while 8 can be interpreted as 12.5% earnings yield.
Submitted by: Administrator