when you compare hes s p e of 31 to mpc s of 7 hes s stock could appear substantially overvalued relative to the s p 500 and mpc alternatively hes s higher p e might mean that investors expect much higher earnings growth in the future than mpc 
however no ratio can tell you everything you need about a stock before investing it s wise to use various financial tools to determine whether a stock is fairly valued investor expectationsin general a high p e suggests that investors expect higher earnings growth than those with a lower p e a low p e can indicate that a company is undervalued or that a firm is doing exceptionally well relative to its past performance when a company has no earnings or is posting losses the p e is expressed as n a though it s possible to calculate a negative p e it s not common the p e ratio can also standardize the value of 1 of earnings throughout the stock market in theory by taking the median of p e ratios over a period of several years one could formulate something of a standardized p e ratio which could then be seen as a benchmark and used to indicate whether a stock is worth buying a p e ratio of n a means the ratio is unavailable for that company s stock a company can have a p e ratio of n a if it s newly listed on the stock exchange and has not yet reported earnings such as with an initial public offering it could also mean a company has zero or negative earnings p e vs earnings yieldthe inverse of the p e ratio is the earnings yield which can be thought of as the earnings price ratio the earnings yield is the eps divided by the stock price expressed as a percentage if stock a is trading at 10 and its eps for the past year is 50 cents ttm it has a p e of 20 i e 10 50 cents and an earnings yield of 5 50 cents 10 if stock b is trading at 20 and its eps ttm is 2 it has a p e of 10 i e 20 2 and an earnings yield of 10 2 20 the earnings yield is not as widely used as the p e ratio earnings yields are useful if you re concerned about the rate of return on investment for equity investors who earn periodic investment income this may be a secondary concern this is why many investors may prefer value based measures like the p e ratio or stocks the earnings yield is also helpful when a company has zero or negative earnings since this is common among high tech high growth or startup companies eps will be negative and listed as an undefined p e ratio denoted as n a if a company has negative earnings however it would have a negative earnings yield which can be used for comparison p e vs peg ratioa p e ratio even one calculated using a forward earnings estimate doesn t always tell you whether the p e is appropriate for the company s expected growth rate to address this investors turn to the price earnings to growth ratio or peg the peg ratio measures the relationship between the price earnings ratio and earnings growth to give investors a complete picture investors use it to see if a stock s price is overvalued or undervalued by analyzing earnings and the expected growth rate for the company the peg ratio is calculated as a company s trailing price to earnings p e ratio divided by its earnings growth rate for a given period since it s based on both trailing earnings and future earnings growth peg is often viewed as more informative than the p e ratio for example a low p e ratio could suggest a stock is undervalued and worth buying however including the company s growth rate to get its peg ratio might tell a different story peg ratios can be termed trailing if using historical growth rates or forward if using projected growth rates although earnings growth rates can vary among different sectors a stock with a peg of less than one is typically considered undervalued because its price is low relative to its expected earnings growth a peg greater than one might be considered overvalued because it suggests the stock price is too high relative to the company s expected earnings growth 6absolute vs relative p eanalysts also distinguish between absolute p e and relative p e ratios in their analyses the numerator of this ratio is usually the current stock price and the denominator may be the trailing eps ttm the estimated eps for the next 12 months forward p e or a mix of the trailing eps of the last two quarters and the forward p e for the next two quarters 