Money & Investing – Banks.com

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Yesterday’s stock market rally, along with the fact that the market is gaining on the year, has many people wondering if now might be a good time to get back into the stock market. For those who like picking individual stocks (I’m not one of them), there are different ways to evaluate stock value. It is important to note that just the straight up price is not enough to go on.

Moolanomy offers a very helpful guide to some of the ratios that can help you evaluate the value of an individual stock:

• P/E Ratio: This is the Price to Earnings Ratio. It represents a comparison between the current share price and the earnings per share.
• PEG Ratio: This is the Price to Earnings to Growth Ratio. This measure takes into account the growth of the company, in addition to its current share price and earnings.
• PEGY Ratio: This builds on the previous two evaluations to consider a dividend yield.
• P/B Ratio: Price-To-Book ratio compares the share price to its book value. The book value is the company’s total asset value — looking at balance sheet.

All of these ratios can be helpful in determining whether or not a company is overvalued or undervalued. If a stock is undervalued, it is generally considered a good buy. At some point, according to the theory of the stock market, the share price will rise to meet the value of the investment.

However, even the best evaluations do not take into account the future, and you can still lose out. This is precisely why I’m not into individual stock picking. While some people do well at it, and can do it for entertainment, I am not one of them. I prefer the safety of index funds to the stresses of picking stocks. But there are plenty of those who find stock picking exhilarating and profitable.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.