What is better a high or low P/E ratio?

[Justin]

[Mr. Wisdom]

A low P/E Ratio is a better value, so that could be viewed as better.

P/E stands for Price/Earnings. Price is the stock price times the number of shares outstanding. Earnings in the company profits over the last 12-months. You are receiving a lower price for stock per $ of earnings if the P/E is low.

Just because a stock has a low P/E does not mean that the stock will go up, and ultimately, what you are looking for is stocks that are going to go up in price. This may very well be a stock with a high P/E that you expect will get to an even higher P/E.

[underexposed...]

ok....P/E ratio is (Price/Share)/(Earnings/share)

if the P/E is low then its share price is low compared to its earnings per share.....this either means that the stock is undervalued or no one cares about this stock for some reason.

if the P/E is high then the share price is clearly not based on its current earnings. IF the stock is a newly introduced to the market then the investing public has high anticipation of further earnings ....either through their existing product that is ground breaking or the stock is pumped by the media leading expectations (Facebook was like that initially)....Hi-teck stocks are like that, oil companies or mining companies can get like that if they tout the potential of a new find, bio-research is like this too

Beware of extremely high P/E numbers....often these expectations are based on nothing more than dreams...not reality. Similarly beware of extremely low P/E numbers....there is a reason why the investing public is ignoring this stock.

When you compare P/E ratios do so within the same industry/sector. It is silly to compare a stock in two separate groupings

Google Inc. [GOOG](Technology/Internet Information Providers) with a P/E32.13
is actually pretty low for this industry/sector

American Woodmark Corp.[AMWD]Consumer Goods/Home Furnishings & Fixtureswith a P/E of 31.01 is actually quite high for this sector

they are not equivalent comparisons...if you are interested in a particular stock and you want to compare its P/E do it with like stocks....apples to apples not apples to nails

[i like turtles]

PE alone is hard to use as a measure of quality. A low PE means the stock is not being highly value by investors for one reason or another. If you look at companies like Apple, the PE is 14. Does that mean that investors have "missed the boat" and don't see the value in Apple? Or does it mean that Apple is a mature company with mature products and unlikely to grow like it has in the past?

Or how about Amazon? It has a PE of 1400, and has never been below a PE of 300 or more. Yet people buy the stock because they anticipate future growth and profits.

I think the best way to look at PE is to also look at the growth of the company. Take a company like Fiesta Restaurant Group (FRGI) with a PE of 69. They just got rid of most of their debt and are poised to have tremendous growth in the next year and longer. I love this stock because it has a ton of future growth. So a PE of 69 doesn't seem high to me. If GE or MSFT had a PE of 69 it would be very expensive, because the companies aren't going to grow very fast.

[Lois Griffin]

Low