The Netherlands is the 25th largest economy globally, with an estimated 683.89 billion USD. The national currency used within the country is the Euro (EUR). Estimations indicate that at least 1 million Dutch people are active participants in stocks and commodities trading.
Despite a relatively small population, the Dutch have a significant presence on international stock exchanges. Many well-known companies have shares listed on multiple stock exchanges, including Amsterdam’s AEX index and Euronext in Rotterdam.
However, some prominent local companies do not want to expand their operations abroad even though many of the companies have international branches or are multi-national corporations in their own right with millions of customers worldwide.
The company’s total value equals the number of outstanding shares multiplied by the share price. The ratio between a company’s market capitalization and revenue is called the “level”, and it more or less reflects how “big” a company is relative to its peers. A higher level means that the stock is trading at a premium valuation, while a lower level means it is relatively cheap. While there is no fixed set of rules for determining whether a particular stock is expensive or not, some investors suggest using the following criteria.
If you get all four conditions right, chances are you have found yourself an undervalued stock. However, if one or two of these conditions are wrong, you might be looking at overvaluation.
Yield is the ratio between the dividend per share and the price per share. It provides investors with an idea of how much money shareholders will receive in dividends over some time, expressed as a percentage. This means that if you pay 400 Euros for ten stocks at 20 Euros each, it doesn’t matter whether you get 40 Euros or 4 Euros back in dividends – either way, your yield is 4%. However, if you get 50 Euros back instead, your yield rises to 5%. You can learn this here.
Earnings Growth Rate (EGR)
This number tells us how fast earnings have grown over the past 12 months (or more). As traders like to say: Past Performance Is Not Indicative Of Future Results. This is because companies change their strategies and management all the time, so past performance is not necessarily an indication of future growth. However, we do need at least three years of earnings history before we can start analyzing if a company has any long-term potential or not.
The bigger the number, the faster earnings are growing, and that’s how you get to determine if a stock price will go up sooner rather than later. There is no hard rule when it comes to choosing whether to buy into high or low EGR stocks – however, your best bet would be investing in high EGR stocks at early stages when they are still small businesses with great potential.
Price to Earnings Ratio (P/E)
This ratio tells us whether a stock is “expensive” or “cheap”. It represents the number of years it will take for a share to repay all costs, including salaries and capital expenditures. You can calculate the price to earnings ratio by dividing the market price per share by earnings per share. A P/E of 20 means that if you buy one share today, it will be able to cover all your costs from sales over the next 20 years’ time. This is also known as the “multiple” or “share multiple” as it reflects how much investors are willing to pay per Euro in earnings.
Price to Book Ratio (P/B)
The P/B of a stock indicates the extent to which investors are willing to pay for each Euro of equity capital. The price to book ratio is calculated by dividing the market price per share by book value per share, which used to be the total assets minus liabilities divided by the number of outstanding shares.
A P/B ratio lower than one means that you’re buying your stocks at less than what they’re worth, while a ratio higher than one means that you’re paying more for those assets than what they are worth. This may sound like it’s always better to buy stocks with high P/Bs, but not all companies are meant for all investors – some want reasonably priced businesses with excellent growth potential. In contrast, others want large mature companies with plenty of room for growth in the future.