A good understanding of PE Ratio gives the investors an idea if the stock has sufficient growth potential. The P/E ratio is one of the most widely used stock analysis tool by investor before making taking an investment decision.
But P/E ratio varies from industry to industry. There are sectors like diamond, fertilizers etc that have a low P/E ratio and there are other sectors like Pharma, IT that command high P/E ratio. It is important to have a good understanding of both.
The P/E ratio of different sectors varies that is why it is important that the P/E ratio of one company should be compared with the companies in the similar business sector.