Ask Colin

You look for a PE multiple less than 10 for a value stock. Would it worry you if the multiple was as low as 1.5?

My word it would "worry" me! That is very low. I would want to research the situation to find an explanation. Two possibilities would be:

1. The company was heading for trouble and the market had decided that it would not replicate last year's earnings or anything like them.

2. The company had been in trouble, probably making losses. It may be recovering, but had as yet not made more than a nominal profit. The market is valuing it on an expected increase in earnings in the current year.

In each case you would need to assess what the likely possibilities are. The price chart will help. If it is in a downtrend, just forget it. If there is a long accumulation zone, it would be worth monitoring for a breakout and researching further. If it had already begun trending up from an accumulation zone, research it urgently with a view to buying some. This last is the least likely scenario, because the PE multiple would be unlikely to still be that low if it is already trending up.

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