Why a Falling Share Price Doesn't Always Mean a Stock Is Cheap | P/E Ratio Explained

A falling share price doesn't always mean a stock is cheap. But why? In this beginner-friendly stock market lesson, we use simple, fictional examples in Microsoft Excel to explore the relationship between share price, earnings per share (EPS), and the Price-to-Earnings (P/E) ratio. You will learn why a $20 stock is not necessarily cheaper than a $200 stock and how a company's valuation can become more expensive even when its share price falls. 📊 What you'll learn: Why share price alone does not tell us whether a stock is cheap or expensive How to compare two companies using earnings per share (EPS) and P/E ratios Why a lower share price does not always mean better value How falling company earnings can affect valuation Why investors should look beyond the share price before making decisions Example 1: Comparing two companies Using fictional Excel data, we compare: Company A: Share price $20 | EPS $1 | P/E ratio 20 Company B: Share price $200 | EPS $20 | P/E ratio 10 Although Company A has a lower share price, Company B has a lower P/E ratio. Example 2: What happens when earnings fall? Before: Share price $100 | EPS $5 | P/E ratio 20 After: Share price $60 | EPS $2 | P/E ratio 30 The share price has fallen by 40%, but the P/E ratio has increased from 20 to 30. This simple example helps explain why a falling share price does not automatically make a stock cheaper based on its earnings. The P/E ratio is one useful valuation measure, but it should be considered alongside a company's earnings outlook, growth, financial position and business fundamentals. 🎥 Want to understand the P/E ratio in more detail? Watch my earlier beginner-friendly lesson: P/E Ratio Explained for Beginners 👉    • Stock Market Basics Lesson 5: P/E Ratio Ex...   📚 Explore More with Unlock Futures 🌐 Website – Computer skills, Excel and financial education https://unlockfutures.com.au 🛍️ Shopify – Digital learning resources https://shop.unlockfutures.com.au 🎨 Etsy – Printable worksheets and educational resources etsy.com/shop/UFLearning 📰 Substack – Investing, market insights and financial literacy https://unlockfutures.substack.com About Unlock Futures Unlock Futures provides practical, beginner-friendly education in computer skills, financial literacy, stock market concepts and everyday technology. Our aim is to make learning accessible, understandable and useful for everyday life. Learn calmly. Build confidence. ⚠️ Educational Disclaimer This video is for general educational and informational purposes only. It does not constitute personal financial advice, investment recommendations or a recommendation to buy or sell any security. All companies, share prices and financial figures used in this lesson are fictional and provided solely for educational demonstration. Stock market investing involves risk, and a low P/E ratio does not automatically indicate that a stock is undervalued. #StockMarketForBeginners #PERatio #StockValuation #InvestingBasics #UnlockFutures GENERAL EDUCATION ONLY Unlock Futures is operated by Skills Forward Pty Ltd (ABN 81 686 531 484). Our videos are general educational information only. We do not hold an Australian Financial Services Licence and do not provide financial product advice. Nothing in this video takes into account your objectives, financial situation or needs, and we do not recommend any share, ETF, fund or other financial product. Share values can fall as well as rise and you may lose money, including your capital. Before acting on anything here, seek advice from a licensed financial adviser. Past performance is not an indicator of future performance. Full disclaimer: unlockfutures.com.au/disclaimer — Mandeep Kaur Aujla · Unlock Futures Learn calmly. Build confidence. unlockfutures.com.au