I just noticed that many of my friends in the stock investment group are asking about PE. It seems that many people still don’t understand what PE is and how to use it to make buy decisions. Let’s talk about it.

When the market drops like this, we want to know whether the stock prices we see right now are really fair. Is it worth buying yet? If we buy, when will we make a profit? These are questions that come up for everyone who trades stocks—and where can we find the answers?

One effective approach is to look at the PE Ratio, or Price to Earning Ratio. This is the tool that value investors use the most. Just by the name, you can understand what it means: PE is the ratio between a stock’s price and earnings per share. It tells you how many years you need to wait for your investment to be recovered if the company keeps making the same profit each year.

Calculating PE is not difficult. Take the stock price and divide it by EPS (net profit per share). That’s it. For example, if the stock price is 5 baht and the EPS is 0.5 baht, then the PE ratio would be 10. That means it would take 10 years to break even.

The key point is how low the PE is—the lower, the better—because it means the stock price is cheap, or the company has high profits, or both. If you choose a stock with high EPS, even if the price is a bit higher, the PE could still be lower than a cheap stock with low EPS, which suggests the company has strong profitability.

But be careful: PE comes in two types. One is Forward PE, which uses projected future earnings, and the other is Trailing PE, which uses the actual earnings from the past 12 months. Forward PE can help you see the outlook ahead, but it may be off because it’s based on forecasts. Trailing PE uses real data, but it may not reflect changes that happen after that period.

One weakness of PE is that EPS isn’t constant over time. If a company grows rapidly, EPS will increase, causing PE to drop and the break-even point to come sooner. But if profits fall, PE will rise, and you may need to hold the stock longer. So, PE is a useful tool, but it must be used together with other analyses.

When choosing stocks using PE, don’t forget to study other information as well, such as the company’s business, its competitive ability, and industry trends. All of these will help you make more accurate investment decisions. PE is just one tool—it’s not everything.