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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