im looking into the company SWN and it checks out with all my other research but it has a P/E of 55. Is it better to have a lower P/E or a higher? Thanks.
its not an easy question to answer…
this is why PEG ratio was developed… it compares the PE to the growth ratio….. this way a high growth company with a high PE will value similar to a lesser growth, lesser PE company.
Different industries tend to trade at different PE levels…. indicative to how mature the business is.
this is logical…. why should intuitive surgical trade at a high PE when Pulte Homes is trading at a low PE ???… because Intuitive is anticipating northwards of 80% growth while Pulte's PE is deceiving because the "e" part will diminish significantly and stay low for the near future.
Pe is also screwey…. what if the company recently took a significant 1 time charge that should never re-occur?… their pe may appear 60 but in reality only be 10.
Earnings are easily manipulated …. do some research on valuation methods and try to diversify your methods.
personally i look to PEG ratio… compare it to similar companies in their industry, then price to revenue, history of growth… anticipation of future growth… etc… PE ratio falls far down on my list.
cheers