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Chapter 3. Trend Interpretation: Decidin... > PE Ratio and Core PE Ratio

PE Ratio and Core PE Ratio

The third of the three primary indicators, PE ratio, not only acts as a valuable tool for discovering and interpreting trends but also provides a link between the fundamental and the technical. We cannot ignore price and price volatility in the analysis of stocks. The technical indicators, which by definition involve the study of price trends, are not the primary means for picking stocks; but for the purpose of interpreting trends, we can draw inferences from price as well as from PE trends.

If we look at today's price but an outdated EPS number, the PE is unreliable. So, for the purposes of using PE to interpret overall trends, we may observe that PE is valuable when compared from year to year, with the ending stock price compared to final EPS, and then analyzed to the same period in the previous year.


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