Blueormond,

There is no one correct way to value a company; it's best to use a variety of metrics to estimate a range of value.

The P/E ratio is not a terrible metric to use, but it's also not a great one. Earnings are not always a reliable indicator of a company's health, but sometimes it's all you have to go on. In addition to the P/E ratio, look at the Enterprise Value to EBITDA ratio (EV/EBITDA). The EV/EBITDA ratio accounts for the company's debt level (a simple way to think about enterprise value is market capitalization plus debt minus cash) while also eliminating the unreliable accounting for depreciation and amortization. In most cases, you want the EV/EBITDA ratio to be below 5.

There are countless other metrics we could use to estimate the value of a company. Would you care to share which company you're looking at? That way, I can suggest more metrics to look at that directly apply to the stock you're researching.

titans8904