PE or PER (price to earnings ratio) is the ratio of earnings to the SP - or, if you like, the number of years required to get the SP via earnings (if div paid, of course). Eg: If EPS (earnings per share) was 1 cent on a stock that costs 6c, you have a PE ratio of 6. IE If you paid 6 cents for the share, its earnings will pay you back in 6 years. The lower the PE the more undervalued the stock. At current EPS (FY2009) FML is overvalued, but at expected 2010 earnings it is undervalued (IMO). Simple EPS is the NPAT (nett profit after tax) divided by the number of shares on issue.
As a starting point, many investors will look at PERs of individual companies versus sector average to find undervalued stocks.
IF POG goes parabolic as many suggest, we could see very high PERs in the gold sector. This is the great "hope" for those holding gold stocks at the moment. Will it happen? I don't know, but if it doesn't, I'll be happy earning 2 or 3 cents per FML share in a few years.
I hope that helps.
Cheers,
C12
FML Price at posting:
6.1¢ Sentiment: Buy Disclosure: Held
