Lone factor to keep in mind before buying a stock!

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Lone factor to keep in mind before buying a stock!

Authored by Ankit Yadav, Wealth Manager (USA) & Director of Market Maestroo 

Picking a stock is very difficult, especially the kind of stock that fulfills investors’ desires & requirements and appreciates continuously on a YoY basis. You might be thinking that for figuring out such kinds of stocks, investors require a lot of analysis, valuation model, complex matrices, the study of history, etc.   

Isn’t it? 

However, what if, as a wealth manager, I will tell you that you can find such kind of multi-bagger stocks with just one factor?! Surprised, aren’t you? So, let’s decode that major matrix, which you must check before picking any kind of stock! 

One of the country’s youngest millionaires from the stock market namely, Ankit Yadav, Wealth Manager (USA) & Founder and Director of Market Maestroo said the foremost matrix to watch is very easy and an old technique i.e. stock P/E ratio. 

The P/E ratio conveys to the investors how much they will pay per share for Re 1 of earnings for the business. 

The ratio is used for valuing companies and to find out whether they are undervalued or overvalued! 

You might think that it’s a very old model of Graham & Buffett times. However, Ankit still feels that it's very effective and cannot be replaced. 

He states that if a fundamentally strong stock with quality management has a P/E ratio less than 20-30, it means that the stock is going to be a future multi-bagger! He identified multi-baggers like Infineon Technologies (IFX), Cholamandalam, IRCTC, Aarti, and many more with this technique. 

Ankit further added that if the P/E ratio is above 100 in any case for the stock, it means that it’s less rewarding in the future and quite overvalued. 

To sum up, I would just like to add that in today’s modern algorithm world, the technique seems old but it’s more rewarding. Yes, the P/E ratio is not the only factor to decide the quality of stock but it’s definitely the most important factor!

Investors must check management quality, dividends, cash flows, profits as well as P/E ratio to get above-expected returns. So, always check the P/E ratio before paying any price to business states. 

 

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