Price Earnings Ratio and Stock Return Analysis (Evidence from Liquidity 45 Stocks Listed in Indonesia Stock Exchange)

Abstract

Stocks with low PE ratio are perceived as having cheaper current price hence expected to generate higher return in subsequent period. This paper aimed to examine stocks with high PE Ratio followed by low stocks return and on the contrary. Using stocks which are included as member of Liquidity 45 in period 2005-2010 as samples Results showed that there is significance difference between low PE and high PE portfolio stock return in short term (holding period of six months) but there is no significance difference if they are hold for one, two, three, and four years. This research also finds that there is no significant relationship between stock return and trailing PE Ratio.

Determinants of price to earnings ratio: Evidence from Turkish tourism companies

“…In this context, if investors expect a high profitability and firm value from the company and they think that the company is low financial and market risk, they can pay high prices for the stocks of the company. These obtained results comply with the findings of Asiri and Hameed (2014), Liem and Basana (2012), and Karadeniz and Koşan (2021). In the study, no statistically significant relationship is found between the natural logarithm of sales, which is included in the analysis as a size criterion and the price-to-earnings ratio.…”

“…Based on the trust of potential investors in the company, the price of the stock may increase (Asiri and Hameed, 2014;Liem and Basana, 2012).…”

Analysis of Longitudinal Binomial Data with Positive Association between the Number of Successes and the Number of Failures: An Application to Stock Instability Study

“…To study the relationship between quarterly bivariate counts of stock daily limit-ups and limit-downs and basic characteristics of stocks that are prone to rise and fall limits, we also collected information on the following three variables quarterly: price-to-earnings ratio (PE), price-to-book ratio (PB) and price-to-sales ratio (PS). These three variables are common and important growth indicators reflecting stock fundamentals [ 12 , 13 , 14 ]. Our analysis results are expected to help managers and investors in risk management and investment decision-making.…”

Effect of Default on Profitability in Kenyan Listed Companies

“…Profitability as a metric of firm financial performance is widely used by financial analysts during security selection and if a firm has been incurring losses continuously it is deemed to financially unhealthy and at risk of collapse from loss of capital invested in the firm (Liem and Sautma, 2012). Knowledge of a firm's profitability or bottom line is of great importance to investors who wish to avoid the risk of investing in loss making unviable firms or divesting or not investing in profitable and viable firms.…”

“…The financial measure of profitability can be measured using the financial ratios of return on assets (ROA) and return on equity (ROE) amongst other ratios and metrics. If a firm is not profitable and has been incurring losses in a continuous manner it is regarded as being in trouble and is deemed to be facing the risk of bankruptcy (Liem and Sautma, 2012). Profitability as a performance measure is criticized for being affected by accounting estimates and judgments and also affected by accounting standards that guide the preparation of financial statements (Al Matari, Al Swidi, Bt Fadzil, 2014).…”