He also states that given how price earnings ratios
are indicative of earnings growth, they are thereby correlated to expected investor returns (as measured through ROE).
The correction has seen price earnings ratios
in the region are now largely in line with western markets and that is attracting increasing interest from the US according to the Bank of New York Mellon vice-president Mahmoud Salem.
With more of the same expected this year and next, many stocks have price earnings ratios
that make them good targets for ''value'' investors.
At the other end of the spectrum, public companies have seen their average price earnings ratios
fall from an average of 18.2x in 2004 to 14.4x this year.
``If you look at the way the price earnings ratios
have dropped back we are now at a stage where you can argue that things are sustainable,'' he said.
Stocks selected must have substantial upside potential based on expected earnings applied to reasonable price earnings ratios
. The expected upside determines the "sell target." Another description of value investing is "price-driven," and price discipline applies both to the purchase price and the target sell price.
One such factor hypothesized by the aforementioned research is the effect of accounting method choice on variations in price earnings ratios
. If two companies with equal economic circumstances choose different accounting methods to account for similar transactions, the price earnings ratios
for the two companies will vary simply because their earnings per share differ.
This offers good investment opportunities." "With price earnings ratios
averaging 16.5 these are cheap valuations for an emerging market," he added.