P/E ratio becoming unreliable

The earnings component of the price/earnings ratio is so easy to manipulate it has become an unreliable valuation method for stock selection, according to BWD UK Equity Income manager Colin Morton. He tends to use the lesser known enterprise value to earnings before interest and taxes (EV/EBIT) to give a clearer indication of a company's underlying profitability and whether it is trading at a premium or discount to the market. With a minimum target FTSE 100 weighting of 70%, BWD Rensburg's UK Equity Income fund is designed to be a core holding in client portfolios. With the FTSE 100 mak...