What is PER and how is it used to operate in the stock market?

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One of the terms that are most used in the stock market but that not all small and medium investors know is the PER. Well, it's the acronym for what is the Earning rate over price per share. And it is decisive to check if the shares of a certain value are expensive or cheap and therefore formalize a correct operation in the financial markets. Not surprisingly, it is one of the investment strategies most used by users who have more experience in equity markets. Because from now on you will not be able to forget that the PER is one of the most important ratios of the Stock Market.

If this happens, one of the strategies you can use from now on is to choose purchases based on this important factor. It can undoubtedly help you make profitable operations that you open under this contracting system. Simply because you will have a greater margin in the possible benefits that you have from that precise moment. Beyond other technical and even fundamental considerations of the selected values. Hence, you can get greater business possibilities si utiliza el PER como punto de referencia para invertir en bolsa. Ya be en los mercados nacionales o fuera de nuestras fronteras.

PER: what is its nature?

The PER is a very strong ratio that is used in the fundamental analysis of companies that are listed on the equity markets. To the point that this very special parameter can be used to buy, trade or even hold positions. Generates a certain objectivity and credibility in operations puesto que se basa en datos estrechamente vinculados a la cotización de la acción. Algo que no vas a poder hacer a través de las cifras que se presentan en los análisis técnicos. Pero su relevance trasciende de estas connotaciones sobre la realidad de las compañías que están presentes en el mercado de valores.

Desde este escenario general, además tienes que tener cuidado de no caer en algún que otro error o trampa que pueda hacerte perder dinero en alguna de las operaciones desarrolladas bajo esta singular strategy de inversión. Sea cual sea el caso, si necesitas saber cuál es el cálculo del ratio PER, no tendrás muchas complicaciones por averiguarlo. Solo deberás de dividir la capitalización del valor en cuestión por su beneficio neto. PER = Capitalización de mercado / Beneficio neto. Desde aqui encontraras que not all values of the shares have the same PER. Not much less.

PER advantages

The main advantage of PER is that it helps you examine the price of a company, beyond other considerations. It will be a more than fundamental data for its correct undervaluation or overvaluation. Y de esta dinámica, puede hacer una elección con mayor consistencia en los mercados financieros requeridos. Por otra parte, puedes calcularlo muy rápidamente y puedes elegir si te conviene o no en un momento dado comprar sus acciones. Aún cuando además se puede usar para salir de los mercados en base a este parámetro del que hablamos en este post.

Another of its most relevant advantages is that it enables you to make a correct comparison between various values that you have on the radar to perform operations. To the extent that it will say which of them has the best prices based on this business variable. To this end, they are very practical to take into account the corrections that occur in the stock market. As an example, the one caused in the national variable income as a result of the political problem promoted in Catalonia. And what has affected the IBEX 35 with a fall in the prices of the most relevant companies.

Best values of the national stock market

Taking the PER into account, there are a number of stocks that are trading at much more attractive prices to buy. From this very specific analysis, IAG, Repsol and ArcelorMittal Some of these proposals are what you have to open positions in the Stock Market. As you will see, PER has nothing to do with a price that is too high or too low. They are totally different parameters from the point of view of your analysis.

It cannot be forgotten in any way that the Ibex 35 companies have a mean PER of 14 times, below its highs and the 30-year average. However, the price / earnings per share link is not always the same, as some investors may believe. Rather, it will depend on the stock market moment and the evolution of the company itself. To the point that it can vary several times during the year. Even though regularly with not very high margins. You must go analyzing them in great detail to have more data to make the final decision in the financial markets.

Disadvantages of this strategy

On the contrary, not all are facilities in this type of analysis. Otherwise, it implies certain disadvantages that you should know from now on. One of the main ones is that it is not a very opportune system for so-called cyclical listed companies. Their rationale is based on the fact that a company may have a PER in high economic cycle and look cheap. But if the business cycle changes, the opposite can happen. In other words, it is truly expensive as a result of the decline in economic activity. Because it can lead you to decrease your benefits in a short time.

On the other hand, we must not forget that accounting manipulation is an exercise that can undoubtedly damage in your actual appraisal. Most of all, you should never buy stocks based solely on PER. But on the contrary, you should always rely on other considerations when making purchases in the financial markets. Whatever these were. At the same time, it is very convenient to combine it with a financial analysis to achieve the desired results. Not unilaterally since your decision could have unwanted effects on your operations on the stock market.

How to use this parameter?

However, the price / earnings per share link does not only indicate the status of an equity security. Rather, its effects in the analysis extend to other variables in financial markets. As an example, the average PER of the market, that of the corresponding sector or even the historical average PER of the stock. As you will see, its application is much more flexible than you think from the beginning. For this, it will be essential to know what information you want to get from this business parameter. It will be a little less than mandatory task from now on.

In conclusion, it is very important that you take into account a golden rule to carry out operations on the stock market. In principle, stocks that trade with a BY loware generally considered cheap, while stocks with For high they are often considered expensive. This is something that many small and medium investors take into account before starting their operations in the different financial markets. Even though there may always be some other scare due to the inconveniences of applying this investment strategy, as we have explained previously.

What will this year be like for your investment?

On the other hand, and depending on the business results, there may be some other variation in the PER estimates. Because effectively, if the expected profits of a company increase the PER will go down. But on the contrary, if the risk of the company increases, the PER will increase. This is something that will be of great advantage to open positions in the Stock Market at any time of the year. Because it is also a very simple system to apply once the concepts in which the price and earnings per share are linked have been assimilated.

To the extent that it can be used to select one security over others, but that truly indicates that it is a cheap option. Not surprisingly, it will mean that it has a greater upward trajectory than other equity proposals. You can use it to monetize your personal assets from now on. Even with the logical precautions in these cases. Because of course it is not an infallible method, far from it. Since it has some other shades that you have to take into account.