PE Ratio is one of the most widely used financial ratios for evaluating the valuation of stocks. From Benjamin Graham’s Era to the current world, the essence of the PE ratio hasn’t changed. The ratio helps investors determine the market value of a stock as compared to the company’s earnings.
A high P/E could mean that a stock’s price is high relative to earnings and possibly overvalued. Companies with a lower price-earnings ratio are possibly undervalued and are considered value stocks. Investors look at these stocks as an opportunity and it tempts them to invest in these stocks before the market finds their value to achieve a robust return.