Khartoum University Journal of
Management Studies

OFFICIAL PUBLICATION OF THE SCHOOL OF MANAGEMENT STUDIES, UNIVERSITY OF KHARTOUM
  • Abbreviation: Khartoum Univ. J. Manage. Stud.
  • Language: English
  • ISSN: 1585-8069
  • DOI: 10.5897/KUJMS
  • Start Year: 1994
  • Published Articles: 35

Reliability of price-earnings ratio as a valuation technique: A critical view

Ibrahim A. Onour
  • Ibrahim A. Onour
  • Ministry of Economy and Planning, Saudi Arabia.
  • Google Scholar


  •  Received: 01 May 2006
  •  Accepted: 01 June 2006
  •  Published: 30 June 2006

Abstract

An implicit assumption underlying price-earning ratio technique is that. Its behavior overtime is stationary. The finding of this paper indicates that stationarity of price-earnings ratio hold only when security valuation is consistent with the dividend capitalization model of Gordon. This paper also shows that there is inconsistency between non-stationary behavior of price-earnings growth prospects lead to a higher price-earnings ratio and higher risk exposure leads to a lower price-earnings ratio.