Issac

P/E = Price to Earnings Ratio

P/E is a measure of valuation, it gives you an idea if the stock is undervalued. A low P/E ratio ( < 15 depending on the industry) may indicate the stock is cheap, but it’s not the only measure, its a good starting point. Its often used in relative valuation, meaning is the stock trading cheaper than it has historical (compare the current P/E to it historic P/E) or cheaper than other stocks in its industry (compare the stock’s P/E to the industry average)

Inst. Own = % of outstanding shares held by institutional investors

Institutional Ownership basically gives you an idea of the types of shareholders own the stock, this is not a statistic that I give a whole lot of thought to, but it can give you an idea of the types of investors and their amount of influence. For example if Will Danoff at Fidelity owns it, I might look at the growth aspects of the stock, but if Capital Group owns a big position I may pay more attention to the value statistics.

EPS = Earnings per Share

Again this is a traditional growth valuation method, you want to see a company that is consistently growing earnings, or at the very least has earnings. Like P/E it is often evaluated relative other companies in the industry or based on its history. I might look to see if their earnings are growing faster than in the past or slower and how that compares to the industry as a whole. Then evaluate what might be driving the growth of earnings.

Yield = Dividend per share divided by share price

Gives me some idea of the health of a company, a company will often pay a dividend to distribute profits to shareholders, I will evaluate the strength of the dividend by evaluating the financial statements to determine the relative health of the company, I might evaluate if the dividend has been going up or down. The yield itself can often tell me if a company is undervalued, but be careful because dividend yield can also be a huge value trap, often times companies trade at high dividend yields because there is something fundamentally wrong and it can also be an indication that the company is at risk of cutting its dividend. Value companies typically pay a dividend because they are much more mature in their business, while growth companies typically reinvest the income into the company to help accelerate future growth prospects.

All these statistics are good starting points, ways to narrow down a list of companies to a few that seem to meet some basic criteria, but once that list has been narrowed its important to look more closely at each company to make sure its a sound investment. Many times the company can look good by statistics but when you look under the hood there are issues.