Jo Trembley, who has a small portfolio of shares of publicly traded Canadian corporations, is concerned about missing out on hot stock picks, like RIM or Celestica.
Jo's stock evaluation method includes comparing the price-earnings ratio of a potential investment with the industry average for that sector. Because companies like RIM and Celestica reported losses, rather than profits, in their early years, price-earnings ratio calculations were not possible. Therefore, these shares were excluded from Jo's analysis.
Instructions
(a) When you purchase a company's shares, should you look for a high or low price-earnings ratio? Explain.
(b) Can an industry average for the price-earnings ratio be a meaningful benchmark for a particular industry? Consider industries that are stable versus those that are undergoing rapid expansion and/or technological change.
(c) What other factors be sides the price-earnings ratio should you consider in making your share purchase decision?