when looking at PE ratios is it considered a better investment if the ratio matches similar...

when looking at PE ratios is it considered a better investment if the ratio matches similar industries?

I understand the PE ratio shows current investors demand for a company share and a high PE ratio generally indicates increased demand because investors anticipate earnings growth in the future so do we want to look at high ratios or low? why?

Expert Solution

One can not say that high P/E is better or low P/E is better in isolation. It has to be compared with the industry average. If it matches with industry P/E that means it is performing well in line with industry. Before judging high P/E is better or low P/E is better if P/E is higher than the industry average then we should drill down to other metrics like sale and PAT growth, Profitability, leverage and other fundamental ratios if these metric of company are in better position than the industry then it is fair for that company to have higher P/E and if that is not the case then the P/E will converge to the industry average. same goes with the low P/E compared to industry. If the fundamental metrics of the company are at par or above industry but P/E is lower than industry then it would converge to industry P/E. So high P/E or low P/E to decide which is better we have to compare other fundamental metrics of company with similar industry.

jeff jeffy answered 1 day ago

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