Low Price-Earnings Ratio Effect

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Low price-earnings ratio effect

The tendency of portfolios of stocks with a low price-earnings ratio to outperform portfolios of stocks with high price-earnings ratios.

A phenomenon whereby stocks with low price-earnings ratios tend to perform better than stocks with high price-earnings ratios. The low price-earnings ratio effect occurs because stocks with low price-earnings ratios are often undervalued, and their prices eventually rise.

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