Australian Stock Market Forecast

Australian Stock Market Forecast

How do you forecast the stock market?
To help understand ways to forecast the Australian stock market we will explain the use of EPS, P/E and the Dividend Yield.
All of these numbers are related: earnings per share is used to calculate price-to-earnings, while part of these earnings will be used to paid dividends, and therefore produces the dividend yield.
EPS, or earnings per share, is used to calculate the earnings of a company per share. Basically, investors will be looking for stocks that can increase their EPS over time.
As an example, you the investor would be looking at a stock that has an EPS like this: Current = $0.22; Next year = $0.32; and in two years the expected EPS would be $0.40.
Once again this should not be used alone and further research should always be done.
The next part we look at is P/E or the Price to Earnings ratio. This ties into EPS because P/E is calculated by taking the current share price and dividing it by the EPS to give us the P/E.
Intuitively, we expect to find value in the market where earnings are high and the share price is low. When this occurs, (from the formula) we get a low P/E.
These stocks would appear to be cheaper relative to those that have higher P/E’s.
The converse occurs where earnings are low and the share price is high resulting in a high P/E. These stocks would appear to be more expensive relative to those that have lower P/Es.
So in a nutshell, the lower a company’s P/E is relative to its peers, the cheaper it is. Of course, while we can assume that paying less for something this is good, also remember that you get what you pay for. A high P/E is often seen as a sign of strength, because the market is will to pay a premium for this company.
Last but not least is the Dividend Yield. The dividend yield is used to forecast what the future dividends will be compared to the share price expressed in percentage terms.
An example would be that a company that has a dividend yield of 2.5% would pay you $2,500 of the company’s profit if you had have invested $100,000.
These are some tools that help you forecast the stock market, learn more with australianstockmarketforecast.com blog info