I just noticed that in the stock investor community, people often ask about PE ratios, whether the current stock price is cheap or expensive, whether they should buy now, and most importantly, how to know when they will make a profit. These questions are really common.

This is where the PE ratio, or simply PE, plays an important role. PE is the ratio of the stock price to earnings per share. It tells us that if we buy a stock at this price, how many years we need to wait to break even, assuming the company makes the same profit every year.

The calculation is very simple: PE = Stock Price divided by EPS (Earnings Per Share). The numerator is the price we pay, and the denominator is the profit the company generates for us. If the stock price is 5 baht and EPS is 0.5 baht, then the PE is 10 times. That means it will take 10 years to recover the investment.

What we need to understand is that EPS is not always constant. If the company expands its business or the market grows, EPS will increase, causing the PE to decrease. This means the investment will be recovered faster. In the same example, if EPS increases to 1 baht, the PE becomes 5 times, indicating a return in just 5 years. Conversely, if the company faces obstacles and EPS decreases, the PE will rise instead.

There are two types of PE that investors should know: Forward PE uses projected future EPS, while Trailing PE uses last year's EPS. Forward PE helps visualize the future but carries risks from inaccurate forecasts. Trailing PE is reliable because it uses actual data but may not reflect recent changes in the company.

However, PE is a tool with limitations. It helps compare how cheap or expensive stocks are, but it doesn't tell the whole story. A company with a low PE might have hidden problems, or a company with a high PE might be growing rapidly. Therefore, PE should be used together with other tools to evaluate stocks.

In fact, the PE ratio is a good aid for timing investments, but don't rely on it alone. Study other information as well, such as the company's trend, industry status, and external factors. Doing this will help you find good, undervalued stocks and reduce investment mistakes.