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ratio can be considered as the overpriced stock. There are some reasons behind it such as
a bull market, news about the company, and the industry. On the other hand, Low PE
stocks can be considered that the stock is under priced than the actual price. Then,
Banz(1981) added that the company size was related to the PE ratio. The small
companies tend to outperform large companies even after an allowance because of their
bigger risk.
The price earnings ratio is the fundamental analysis that is used to find out whether the
market price is overvalued or undervalued comparing to the value of the company. The
author decides to use technical analysis also to help investor make a decision. The most
populer technical analyses indicator is moving averages. The investor can know the
trend of the stock by looking of moving averages. Hence, The moving averages can
help investors to make a buying or selling decision(streetauthority) The author decides
to use 200 moving averages becasue the longer period of MA can smooth out the price
movement which can confuse the investors. The 200days moving average will be used
to gauge buying interest. The low PE ratio could be used to select the undervalued
however, it is unless there is good buying interest, and cheap stocks can remain cheap
for quite long time. Here 200 days moving average will come in handy to helps us to
select stocks with the tendency of resuming buying interest.
Investors must analyze the company thoroughly, to know whether the company is
fundamentally sound good and whether the stock price represents any value to buy at the
moment, before buying the stock. This could be done by fundamental analysis.
However, the price of the stock could go up just because there are the other people who
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