Is it better to have a high P/E ratio or a lower?

Answer 1

I don't think that first responder is much of an investor. Let's take a look at an example.

A stock is trading at $10. It has earnings of $3. It's P/E ratio is 10/3 = 3.33

Now imagine that every other stock in the same industry has a P/E of 10. In order for this stock to get to a P/E of 10, its price would have to go to $30. (30/3=10). We would say this stock is undervalued relative to its industry. Or, that it has a potential $20 upside or a 200% upside.

Now...let's assume that same stock is trading at $50. Its P/E would be 50/3 = 16.67. That would be a high P/E (which according to that first responder is good). But I would say that it is overvalued relative to its industry and is likely to see its price fall by $20 so that its P/E is in line with its industry average. A high P/E may indicate an overbought stock.

Of course, the P/E is just a very small part of valuation, and it is important to see why the P/E is higher or lower than industry averages. There is often a very good reason why.

Answer 2

Depends, are you buying or do you already own? P/E is just a measure of price. All else equal, you would generally prefer lower if you're buying. But beware the 'value trap'. Sometimes things are cheap for a reason.

Answer 3

If you are already in, higher. if you want to buy now, then lower. higher the p/e, the more expensive the stock.

Answer 4

higher is better. higher the PE the more of a return you may get