P/E Ratio
A second indicator is the price/earnings (P/E) ratio. This is the multiple derived by dividing price per share by earnings per share. The result, called the multiple, represents the number of years of earnings reflected in the current price per share.
The medium level between 25 and 10 is generally assumed to be reasonable for stocks. However, the true meaning of P/E is not restricted to a multiple in the moment. What is meaningful is the breadth of yearly P/E range from high to low and the consistency of that range over many years. In a fundamentally volatile trend, P/E can range broadly, spiking high in some years and settling very low in others. In a low-volatility company, P/E is likely to be far more consistent over several years. ...
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