Price Earning Ratio (PER): Guide for Stock Investors

Price Earning Ratio or PER is an important term in the world of shares that investors must understand. PER helps investors in determining the right stock choices. Let's learn more about what PER is and its benefits for investors.

What is Price Earning Ratio?

PER is a type of ratio used in fundamental analysis. PER measures and analyzes risk and assesses whether a company's shares are expensive or cheap based on the company's ability to generate net profits. In simple terms, PER is a number used to predict stock price valuation.

PER shows how much the current share price is compared to the net profit generated in one year. The higher the PER, the more expensive the share price and the better the share performance in generating profits. This makes PER important in fundamental stock analysis to help investors make the right decisions.

Benefits of PER for Investors

1. Facilitates Prospective Investment Evaluation: PER makes it easier to evaluate shares that have the potential to provide large profits in the future. Through PER analysis, investors can understand the profit condition of company shares and choose the most prospective shares.

2. Helps Decision Making: PER is the basis for making investment decisions. Investors can use PER to carry out analysis and study the prospects of the shares they want to buy, thereby reducing the risk of making mistakes.

3. Estimating Stock Market Value: In buying and selling shares, understanding the stock market value is key. PER helps investors understand the market's perception of a stock and the condition of the company.

How to Calculate PER

Investors need to understand how to calculate PER. The formula is:

PER=Closing Price/EPS

EPS (Earnings Per Share) is net profit per share, while closing price is the price per share when the stock exchange closes.

Calculation example:

1. PT A has a closing price of IDR 50,000 and EPS IDR 4,000.

2. PT B has a closing price of IDR 5,000 and EPS IDR 100.

PER is calculated as follows:

1. PER PT A: IDR 50,000 / IDR 4,000 = 12.5
2. PER PT B: IDR 5,000 / IDR 100 = 50

From this calculation, PT B has a higher PER than PT A, indicating that the value of PT B's shares is higher. However, companies with too high a PER also have high volatility and can be considered overvalued.

Conclusion

PER is an important factor in making stock investment decisions. By understanding and analyzing PER, investors can make wiser and more profitable investment decisions.