PE Ratio. The Motley Fool website discusses a situation with regards to the Price/Earnings ratio of Pfizer that is similar to that discussed in our text. They’ve stated that, at the time of the article, Phizer’s P/E was 50. They go on to state that

it can’t possibly grow its earnings fast enough to justify paying 50 times every dollar earned in the last 12 months, can it?

They go on to state the reason for this high P/E ratio:

the stated earnings under generally accepted accounting principles (GAAP) include a non-cash writedown of impaired goodwill to the tune of $4 billion. Back this amount out, and Pfizer's P/E drops to a much more reasonable 19. But an investor just looking at the number would come away with a singular determination: Pfizer is insanely expensive.

They sum up by stating that

much of the market treats the P/E as the be-all and end-all in measures of how expensive a stock is means that those who wish to dig a little deeper could find values in unexpected places.

(Posted by P. Timmerding)