Stock trading has been around forever but sometimes it can be difficult to construct a bias for whether or not a given company is currently overvalued or undervalued. One of the ways stock traders tackle this problem is to analyze the most commonly watched stock metrics. Common examples here include price-to-earnings, return on investment, earnings per share, and compound annual growth rate. Here we will look at what goes into each of these calculations to determine how they are used when generating new ideas for stock positions.
Price-to-Earnings Ratio (P/E)