Do low P/E ratios mean bargain buys?

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Musicwhiz Wrote:I thought investors should ALWAYS look at the fundamentals? Who buys just based on PER anyway?

The more "investors" I meet, the more I realize how rare fundamentals-based investors really are. Many "investors", whether retail or institutional, naive or sophisticated, large or small, look for shortcuts. Unfortunately investing IS work. But few people want to acknowledge this. Even fewer want to do the work. But those who do, will reap the rewards.

Quote:But analysts warned that while low P/E values could indicate that a stock could be undervalued, the issue is more complex.

I personally think the article would have worked a lot better if this part had come in front and the companies came later as examples of how low PEs were misleading.

As it stands, it appears the writer is pushing the low PE stocks, with a last-minute disclaimer from SIAS. Such a viewpoint is not helpful to novices (who may jump into low PE stocks and get burned) nor old hands (who are likely to laugh at the simplistic approach).

With the order of the content reversed it would read as a warning to investors to beware of amazingly low PEs, which novices would find informative, and old hands would appreciate as a reminder.

Some comments on the examples given:

Quote:In an extreme case, China Sun Biochem's P/E is just 0.8. The stock was suspended after encountering accounting irregularities two years ago, and is in the process of being liquidated.

FibreChem Technologies, also suspended from trade and another victim of an accounting scandal, has a P/E of 0.9. It is now in talks with a potential investor.

These are great examples of why one should NEVER buy based only on PE.

Quote:Property stocks, including those that operate in overseas real estate markets, have an average P/E of 11.4. MacarthurCook Property Securities Fund, which invests indirectly in Australian properties, has a P/E of 1.2.

Property company earnings are lumpy so PE is meaningless. MPSF is a fund which should be evaluated on P/B not PE.

Quote:Ho Bee Investment is trading at 3.3 while Hongkong Land is at 3.5.

Ho Bee is a developer with lumpy earnings. Hongkong Land is a landlord booking revaluation gains. Using PE is not appropriate for either company.
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RE: Do low P/E ratios mean bargain buys? - by d.o.g. - 23-06-2011, 09:09 AM

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