The short answer? No. The long answer? It depends.
The pricetoearnings ratio (P/E ratio) is calculated as a stock's current share price divided by its earnings per share (EPS) for a twelvemonth period (usually the last 12 months, or trailing twelve months (TTM)). Most of the P/E ratios you see for publiclytraded stocks are an expression of the stock's current price compared against its previous twelve months' earnings.
A stock trading at $40/share with an EPS (ttm) of $2 would have a P/E of 20 ($40/$2), as would a stock priced at $20/share with an EPS of $1 ($20/$1). These two stocks have the same pricetoearnings valuation  in both cases investors pay $20 for each dollar of earnings.
But, what if a stock earning $1 per share was trading at $40/share? Now we'd have a P/E ratio of 40 instead of 20, which means the investor would be paying $40 to claim a mere $1 of earnings. This seems like a bad deal, but there are several factors which could mitigate this apparent overpricing problem.
First, the company could be expected to grow revenue and earnings much more quickly in the future than companies with a P/E of 20, thus commanding a higher price today for the higher future earnings. Second, suppose the estimated (trailing) earnings of the 40P/E company are very certain to materialize, whereas the 20P/E company's future earnings are somewhat uncertain, indicating a higher investment risk. Investors would incur less risk by investing in more certain earnings instead of less certain ones, so the company producing those surething earnings again commands a higher price today.
Secondly, it must also be noted that average P/E ratios tend to vary from industry to industry. Typically, P/E ratios of companies in very stable, mature industries which have more moderate growth potential have lower P/E ratios than companies in relatively young, quickgrowing industries with more robust future potential. Thus, when an investor is comparing P/E ratios from two companies as potential investments, it is important to compare companies from the same industry with similar characteristics. Otherwise, if an investor simply purchased stocks with the lowest P/E ratios, they would likely end up with a portfolio full of utilities stocks and similar companies, which would leave them poorly diversified and exposed to more risk than if they had diversified into other industries with higherthanaverage P/E ratios. (To read more on P/E ratios, see Understanding The P/E Ratio and Analyze Investments Quickly With Ratios.)
However, this doesn't mean that stocks with high P/E ratios cannot turn out to be good investments. Suppose the same company mentioned earlier with a 40P/E ratio (stock at $40, earned $1/share last year) was widely expected to earn $4/share in the coming year. This would mean (if the stock price didn't change) the company would have a P/E ratio of only 10 in one year's time ($40/$4), making it appear very inexpensive.
The important thing to remember when looking at P/E ratios as part of your stock analysis is to consider what premium you are paying for a company's earnings today, and determine if the expected growth warrants the premium. Also compare it to its industry peers to see its relative valuation to determine whether the premium is the worth the cost of the investment.
Now that you have an understanding of the P/E ratio in terms of stock valuation, learn how the PEG Ratio can help investors price a company based on its future growth potential in
RELATED FAQS

Why did Warren Buffett invest heavily in CocaCola (KO) in the late 1980s?
Discover why Warren Buffett found CocaCola an attractive investment in 1987. One criteria of a Buffett stock pick is a moat ... 
Why does Warren Buffett largely avoid investing in the technology sector?
Learn about why Warren Buffett has traditionally avoided investing in technology companies. Read about his value investing ... 
What is the average pricetobook ratio for companies in the drugs sector?
Find out more about the pricetobook ratio and what the average P/B ratio is for companies in the drug manufacturers  major ... 
What makes the chemicals sector attractive to value investors?
Discover what makes the chemicals industry attractive to value investors. These investors seek to take advantage of wide ...

Warren Buffett
Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire ... 
Return On Equity  ROE
The amount of net income returned as a percentage of shareholders ... 
Cash FlowtoDebt Ratio
A ratio of a company’s cash flow from operations to its total ... 
P/E 10 Ratio
A valuation measure, generally applied to broad equity indices, ... 
Purple Chip Stock
A term coined by portfolio manager John Schwinghamer to describe ... 
Graham Number
A figure that measures a stock's fundamental value by taking ...