two companies , same industry ,different P/E ratios, the company with the lower P/E ratio is usually the better buy?

The P/E is sometimes referred to as an *Investor Sentiment* indicator. The P/E will move minute by minute as the price changes, as earnings changes usually happen only once a quarter. As the P/E goes up, it shows that current investor sentiment is that the company is worth more, its future prospects are bright, and sellers are only giving up their stock at higher prices. A dropping P/E is an indication that the company is out of favor with investors.

A lower P/E ratio likely implies a company is in its mature stage or has cyclical, inconsistent earnings. A very low P/E implies that investors believe earnings are likely to decline in the future. High growth companies can justify higher P/Es, but P/Es over30 are difficult to sustain with earnings growth. They are considered speculative. Similarly, companies with no or negative earnings have non-applicable P/E's, forcing those relying on using a multiple to lean on either price-to-book ratios or price-to-sales. Companies posting losses are frequently new companies or start-ups, oftentimes with excellent prospects, but not yet earning a profit.

P/E should never be used alone in valuing a company because earnings are fluid and can change due to a variety of circumstances. A company with a P/E of5 is not necessarily a better investment than a company with a P/E of30. Sometimes there are good reasons for a P/E to be low or high. The trick to investing wisely is knowing when the market has it right and when it does not.

 

 

- See more at: http://wiki.fool.com/P/e_ratio#Investor_Sentiment

yes. low P/E means the share is comparativly cheap and attractive. Two factors make P/E ratio lower. Price of the share should be lower or per share earning should be high

yes, the company with the lower P/E ratio is usually the better buy to be part of the company assets and there's something plan for the company to be increase company financial status, be more competitive and for partnership for the goodness of company

Yes, usually the company with the lower P/E ratio would be the more likely to give better returns.
However, the P/E ratio can be misleading.
One should also pay attention to the following factors Compare the figure with similar size – and type – companies or if we prefer we can also compared it with a PE ratio of a greater segment of a share market by using the PE ratio of an index like the FTSE100.
Risk – does the company have high debt, are they in a weak market, are there poor future forecasts, etc..
Size – small cap companies could have liquidity or trading risks causing them to have a low PE ratio.
Earnings Growth – it make sense to also look at Price to Earnings Growth (PEG) by studying the earnings over a few years.
A company with high earnings growth expectations can be better even if the PE ratio is higher for that company versus a similar size/type company.
Research – as with any ratio it is critical that we conduct an in depth study of the company, market and investors views of that market and company.
We cannot simply rely on PE ratio and EPS