Читать книгу Cotter On Investing - John Cotter - Страница 14

The absolute level of a share price tells us little about a company. Knowing that AstraZeneca has a share price of £28.74 and GlaxoSmithKline has a share price of £11.70 tells us nothing about the absolute or relative merits of these two companies. But comparing their PEs can be useful. In this case, AstraZeneca has a forward PE of 7.1x, while GlaxoSmithKline has a forward PE of 9x. This tells us that the market places a higher rating on GlaxoSmithKline than AstraZeneca. So, while its share price may be nominally cheaper, GlaxoSmithKline shares are regarded as more expensive than those of AstraZeneca.

The job of the investor is to consider whether the market has got it right. If an investor believes that the prospects for AstraZeneca are as good (or even better) than GlaxoSmithKline, then he would regard AstraZeneca as currently being good value relative to GlaxoSmithKline.