Valuation: PE, PB, PEG and DCF

This is lesson-collection #09 of Stock Knowledge 101, merging the former kb26–kb28 (3 mini-lessons). Read in order.

PE price-earnings ratio

This is Lesson 26/31 of Stock Knowledge 101 〔Valuation〕.

• PE = price/eps; years to recoup at current earnings, lower = ‘cheaper’ (in theory).
• Static PE (last year), TTM (trailing 4Q, most used), dynamic (forecast this year).
• Cyclical stocks show lowest PE at profit peaks — a trap; loss-makers have no meaningful PE.
• PE only compares within the same industry and with growth; an isolated number means nothing.

📌 Low PE ≠ cheap: cyclical PE is lowest at peaks (most dangerous); high-growth PE ≠ expensive.

PB, PS & cross-sectional valuation

This is Lesson 27/31 of Stock Knowledge 101 〔Valuation〕.

• PB = price/book value; suits asset-heavy sectors (banks/property) for liquidation value.
• PS = price/sales; suits not-yet-profitable high-growth (early SaaS/e-commerce).
• Never compare PE across industries; compare same track + historical percentile.
• Valuation percentile: where current PE/PB sits in its own 10%~90% history, more practical than absolute.

📌 Pick the right ruler: profit-stable → PE, asset-heavy → PB, unprofitable → PS; watch historical percentile.

PEG and DCF, simply

This is Lesson 28/31 of Stock Knowledge 101 〔Valuation〕.

• PEG = PE / earnings growth (%), PEG<1 often seen as growth-matched valuation.
• PEG ties ‘expensive or not’ to ‘grows fast or not’, fairer than PE alone.
• DCF = discount future annual free cash flows to today; ultimate model but assumptions are very sensitive.
• Practice: rough-screen with PEG, set zones by historical valuation percentile, more operable than precise DCF.

📌 PEG<1 = good value-for-growth; DCF tells you valuation is future cash flows, but don’t worship precise numbers.

⚠️ This article is a methodological illustration and does not constitute any investment or trading advice. Markets are risky; decide with caution.