basic and fundamental P/E question...
Do we want a high P/E or a low P/E?
For example, if the inflation flow-through rate is 100%, a firm has a higher P/E than a firm with an inflation flow-through rate of 50% (page 213 of equity textbook).
“In other words, the less a firm is able to pass inflation through its earnings, the more the firm is penalized” meaning THE FIRM HAS A LOWER P/E RATE.
That being said, I thought we want a low P/E, literally (Price/Earnings)…meaning don’t we want a low price and high earnings, which would generate a low P/E ratio?
It’s pretty fundamental, but I’m a little confused. Can someone please help me out with this? |