Why should the price/earnings ratio ratio

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Reference no: EM131991707

Why should the price/earnings ratio (P/E) ratio be as high as possible?

This means you are paying a larger price (numerator) for every 1 dollar of earnings (denominator), and it's better if this ratio goes up.

Assume if it the P/E ratio is above the S&P 500 of 18.98 (so it's in normal range) , wouldn't it makes sense to have a stock that's at a P/E ratio of 20, as opposed to a stock that's at a P/E ratio of 50, because you can purchase the stock at a cheaper price?

Reference no: EM131991707

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