What’s A Cheap Stock?

Cheap stocks are called value stocks.  These stocks could be cheap because they have had a recent run of bad luck, some bad publicity, or because they’re in an out-of-favor industry.  

How do I know if a stock is cheap?

The most common way to determine if a stock is “cheap” (a value stock) is its P/E ratio.  A P/E ratio of 15 or less typically indicates a Value Stock.  A P/E of 10 or less typically indicates a company is dirt cheap!

Should I buy a cheap stock?

In the value game, you have to look out for so-called value-traps—stocks that aren’t as cheap as they look.  That could be because they have some structural issue, or because the company needs to raise more money to get back on track.  

How long are you prepared to wait for necessary changes to happen?

What if a company has no P/E Ratio?

Companies that have no earnings or that are losing money do not have a P/E Ratio.