Price earnings ratio is widely and commonly used in determining if a stock is over or undervalued. However, it may be quite difficult to use. PE ratio has some inherent pitfalls. For example, cross-section comparison can be a bit difficult. Different sectors have different PE ratios. Utility companies, for instance, are known to have low PE ratios, while telecomm/technology companies are believed to have high PE ratios. It also, does not factor in dividend investors and the underlying PE assumption that share price is driven by future earnings may not be applicable in some sectors … Read more – Is stock trading on high P/E ratio a good stock or not?