P/E ratios are especially useful for growth investors who need to compare companies from the same industry. In more established industries, the P/E ratio will be more of a constant and newer companies with especially high P/E ratios should be treated with caution. In other words, the market value of the company should ideally be tied to earnings. While companies with lower earnings may be poised for a breakthrough in the market, analyzing the P/E ratios of similar companies from the same industry will nonetheless help when making stock purchase decisions.
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