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WORDS OF JESUS CHRIST.

Behold, I stand at the door and knock. If anyone hears my voice and opens the door, I will come in to him and eat with him, and he with me. Jesus Christ

21 May 2018

share market--How do I know when share prices will rise?/read and try it-



There are many methods are there to identify:
I know practically one method which is having accuracy of 70–75%. You can identify by comparing the Stock PE with Stock industrial PE of the particular sector. Stock industrial PE consist of the average PE of its peers.
Formula:
PE Ratio of a Stock = Current Market Price of the stock/Earnings per share
Industry PE Ratio = Current Market price of the Sectoral Index/ Weighted Average Earnings per share of the stocks comprising of the index
Assume there are 3 stocks which are having the below valuation.
STOCK—A—PRICE—100—PE 25—INDUSTRY PE 26
STOCK—B—PRICE—125—PE 15—INDUSTRY PE 26
STOCK—C—PRICE—120—PE 45—INDUSTRY PE 26

Usually for the particular sector industrial leader is having PE approximately to the industrial PE. In the above scenario
Stock A is having the fair Value, because its PE is approximately equal to Industrial PE.
Stock B may be undervalued stock as it is PE is less compare to Industrial PE.
Stock C is overvalued stock as it is PE is greater than Industrial PE.
You can book the profits whenever the stock moves above 60–75% of its industrial PE. There are few stocks having PE, which is double than its industrial PE. Such stocks are overvalued stocks which will get correction in later phase. Before investing in overvalued stock you should properly study about the company historical EPS and try to estimate the future EPS accordingly make your decision.

Currently Indian Banking sector is having Industrial PE : 29.3
HDFC BANK—CMP 1988.50—PE 29.53  INDUSTRY PE 29.3—VALUATION-FAIR
KOTAK MAH.BANK—CMP—1233.45—PE 41.58—INDUSTRY PE 29.3 VALUATION—EXPENSIVE.
YES BANK—CMP—345.10—PE 18.83—INDUSTRY PE 29.3—VALUATION—UNDERVALUED.

In the above example Kotak Bank is trading with higher price. One can book profit whenever the stock PE moves above 45. Long term investor can still hold it until it crosses PE 60. Once its PE crosses above 60 it will be overvalued.
Happy investing.


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