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Why Using Average P/E Ratio is More Realistic
Philippe
During favorable economic times (boom), company earnings are at record levels. As a result, the high stock prices and seemingly low P/E ratio's appear acceptable.
But investors are advised to use average earnings over the past 10 years or so to calculate the P/E ratio, and compare that to the historical long-term average. This gives you a more realistic insight in the Price to Earnings ratio.
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