|Author||Topic: earning yield - i dont get it|
|When ranking stocks baed on their realtative values, the earning yield most likely:
A, should not be used to rank stocks of campnies with negative earnings.
B, will identify the stock with the greateast earnings per share as the most undervalued
C, produce the same value ranking as the P/E for companies with postive earning
the correct answer is C,
i dont get it, obviously, its not the same value ranking, because earning yield is the inverse of P/E, so the ranking should the opposite to that using P/E. i hate it when all three are almost as incorrect but you have to choose the most incorrect one.
|What they mean by ranking is the order when ranking from least desirable stock to most desirable and vice versa.
They do not mean ranking according to 'absolute numbers' for the ratios.
Ranking with yield the higher the better. When ranking with P/E, the lower the better.
Highest yield (E/P) would produce the lowest P/E ratio by definition.