There's a number almost synonymous with investing. It's the P/E ratio. That's Price to Earnings. It's only one number, but it's a powerful one, one that can tell an investor quite a bit about how other investors value a stock. Never buy a stock based on one number, but a good number to start with is the P/E.

The P/E is calculated just like it's spelled. Take the price of the stock (P) and divide it by the last full year's earnings (E). That's what's called the Trailing P/E. It's the most common P/E ratio, the one most investors ask about when they inquire: "What's the P/E?" of a stock.

A second P/E is the Forward P/E. It's the one that uses the projected earnings for next year as the denominator. If analysts are right in their projections for a stock's earnings, this P/E will give you a reading as to the "cost" of buying a stock based on future results.

Continue reading Comfort Zone Investing: The power of one number - the P/E ratio

Comfort Zone Investing: The power of one number - the P/E ratio originally appeared on BloggingStocks on Sat, 18 Jul 2009 10:30:00 EST. Please see our terms for use of feeds.