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The Essential P/E

Understanding the stock market through the price-earnings ratio

By Keith Anderson

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About the Author

Keith Anderson

After completing his BSc in Mathematical Statistics and Operational Research at Exeter, Keith Anderson worked for some years as a systems developer, most recently at Deutsche Bank in Frankfurt. He then did an MSc in Investment Analysis at Stirling, where he won the Morley Prize as the top academically in his year. For his PhD at the ICMA Centre, Reading University, Keith showed that different ... Read more on Keith Anderson

Contents Listing

About the Author
Foreword by Werner De Bondt
Preface
Introduction

Part I: The P/E Calculation

1. History of the P/E
2. Earnings
3. The Price-Earnings Ratio (P/E)
4. Practical Calculation of EPS and the P/E from Company Accounts

Part II: The Value Premium and the P/E

5. Value Investing
6. Efficient Markets and the CAPM
7. Accepting Reality: The Fama and French 3-Factor Model
8. Value Investors Fight Back

Part III: Improving the P/E

9. Developing the P/E
10. The PEG Ratio
11. The Long-Term P/E
12. Decomposing the P/E
13. A Cautionary Tale: the Naked P/E
14. Have we Rescued the P/E?

Part IV: Beyond the P/E

15. Ben Graham: The P/E and the Margin of Safety
16. Joel Greenblatt: The P/E and Return on Capital
17. Joseph Piotroski: The P/E and the Fscore

Conclusion

Appendices
FTSE 100 EPSs and P/Es
Glossary
References

Index
About the Author
Foreword by Werner De Bondt
Preface
Introduction

Part I: The P/E Calculation

1. History of the P/E
2. Earnings
3. The Price-Earnings Ratio (P/E)
4. Practical Calculation of EPS and the P/E from Company Accounts

Part II: The Value Premium and the P/E

5. Value Investing
6. Efficient Markets and the CAPM
7. Accepting Reality: The Fama and French 3-Factor Model
8. Value Investors ...

Jacket Text

The price-earnings ratio, or P/E, is the most commonly quoted investment statistic, but have you ever considered what it actually means? For most people it's a shorthand way of deciding how highly the market regards a company, with investors prepared to overpay for earnings from a high-P/E 'glamour' stock as opposed to a low-P/E 'value' stock. However, academics have known since 1960 that the opposite is true: value stocks outperform glamour stocks consistently over decades.

A company with a low P/E may have been marked down for no readily apparent reason and thus could represent an attractive value investment for those with the patience to wait while the market re-values it. However, the P/E is a backward-looking measure and just because the company earned £1 per share last year it doesn't necessarily mean it will earn anything like that in the foreseeable future. Or, a low P/E can mean a company is deservedly cheap because it is in financial difficulty - in this case the company is likely to become cheaper yet or even go into administration.

This book is a practical guide to how you can adjust and improve the price-earnings ratio and use it, alongside other financial ratios, to run against the crowd and boost your stock returns.

Media Coverage

Traders' Magazine

Who needs a book on the P/E?
In recent decades the P/E has been the most important and best known investment ratio, but what does it actually mean? Apart from the share price, it is the only ...

Read more

MoneyMaker Magazine

In recent decades the P/E has been the most important and best-known investment ratio. Apart from the share price, it is the only investment statistic that is published in print every day. Every ...

Read more

Interactive Investor

If you take today?s share price and divide it by one year of earnings per share taken from a company?s results six or more years ago it will, in general, be a more powerful predictor of future stock ...

Read more

Moneywise

The price-earnings ratio, or P/E, is the most commonly quoted investment statistic, but have you ever considered what it actually means? This book is a practical guide to how you can use p/e, ...

Read more

Money Observer

The price/earnings ratio is one of the most commonly-quoted investment statistics ? but what does it actually mean? In The Essential P/E, Keith Anderson explains how you can use the p/e ratio to ...

Read more

Investment Week

In recent decades the P/E has been the most important and best-known investment ratio. Indeed, apart from the share price, it is the only investment statistic that is published in print every day. ...

Read more

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