

What goes up ... well, sometimes it stays up for an awfully long time.
A common mistake among beginning investors is the short selling of stocks because they have a high P/E ratio. If you aren't familiar with short selling, it's an investing technique by which an investor can make money when a shorted security falls in value. (For more on this, check out the Short Selling tutorial.)
First of all, we believe that novice investors shouldn't be shorting. Secondly, you can get into a lot of trouble by valuing stocks using only simple indicators such as the P/E ratio. Although a high P/E ratio could mean that a stock is overvalued, there is no guarantee that it will come back down anytime soon. On the flip side, even if a stock is undervalued, it could take years for the market to value it in the proper way.
Security analysis requires a great deal more than understanding a few ratios. While the P/E is one part of the puzzle, it's definitely not a crystal ball.

Investing
Getting On The Right Side Of The P/E Ratio Trend
Buying at the right time is crucial, but how do we know when that is? 
Investing
Can Investors Trust The P/E Ratio?
The P/E ratio is one of the most popular stock market ratios, but it has some serious flaws that investors should know about. 
Investing
Is Stock With a Lower P/E Always A Better Choice?
Is a stock with a lower P/E always a better investment than a stock with a higher one? The short answer is no, but it depends on a few things. 
Investing
Beware False Signals From The P/E Ratio
The P/E ratio is a simple tool for evaluating a company, but no one ratio can tell the whole story. 
Investing
Comparing the P/E, EPS And Earnings Yield
Here are three ratios that help investors value stock returns. 
Investing
The 4 Basic Elements of Stock Value
Investors use these four measures to determine a stock's worth. Find out how to use them. 
Investing
5 MustHave Metrics For Value Investors
These quickanddirty ratios will help you find the most undervalued stocks on the market. 
Investing
Understanding The P/E Ratio
Learn what the price/earnings ratio really means and how you should use it to value companies. 
Investing
Differences Between Forward P/E And Trailing P/E
The most common types of price to earnings ratios are forward P/E and trailing P/E. Find out how they differ and the advantages and drawbacks of each. 
Investing
Explaining Forward PricetoEarnings Ratio
The estimated P/E of a company is often used to compare current earnings to estimated future earnings.