I just realized that many people are still confused about PE in the stock market. Let me explain it to you.

When the market drops like it is now, investors often ask themselves whether the current stock price is fair, whether they should buy now, and when they will make a profit. These questions can be answered with several indicators, but the most popular and widely discussed one is PE or PE Ratio.

PE stands for Price per Earning ratio, which refers to the ratio of the stock price to the company's earnings. In short, it tells you how many years of the company's profits you need to recover your investment at this price.

Calculating PE is quite simple: PE = Price / EPS, where the stock price is divided by earnings per share (EPS). If a stock costs 5 baht and EPS is 0.5 baht, then the PE will be 10 times. This means that the company pays 0.5 baht in profit each year, and it will take 10 years to recover the 5 baht investment.

What you need to understand is that PE, which stands for Price per Earning ratio, has two types used by investors: Forward P/E and Trailing P/E.

Forward P/E uses the current price divided by the projected future profit. The advantage is that it provides a future outlook, but the downside is that the company might underestimate its profits, or external analysts might have different estimates, leading to confusion.

Trailing P/E uses the current price divided by the actual profit over the past 12 months. This method is popular because it uses real data, is quick to calculate, and many prefer it because it doesn't rely on others' estimates. However, the problem is that past performance doesn't guarantee future results.

But be cautious: PE is not constant over time; EPS changes depending on the company's situation. For example, if a company successfully expands its market, EPS might increase from 0.5 to 1 baht, causing the PE to decrease from 10 to 5 times. Conversely, if problems occur and EPS drops to 0.25 baht, the PE could jump to 20 times.

Therefore, PE, which stands for Price per Earning ratio, is a useful tool but should not be used alone. You should study the company further, look at profit trends, and check growth prospects. Although PE has limitations, it helps us compare different stocks using a standard measure.

In summary, PE is not the only tool you should use, but it is a good indicator to help select reasonably priced stocks. Studying and combining it with other methods will definitely make your investment decisions more accurate.