Today, we’ll introduce the concept of the P/E ratio for those who are learning about investing. To keep it practical, we’ll show how Diodes Incorporated’s (NASDAQ:DIOD) P/E ratio could help you assess the value on offer. Looking at earnings over the last twelve months, Diodes has a P/E ratio of 15.57. In other words, at today’s prices, investors are paying $15.57 for every $1 in prior year profit. A higher P/E ratio means that buyers have to pay a higher price for each $1 the company has earned over the last year. All else being equal, it’s better to pay a low price — but as Warren Buffett said, ‘It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.’ The P/E ratio indicates whether the market has higher or lower expectations of a company. We can see in the image below that the average P/E (28.6) for companies in the semiconductor industry is higher than Diodes’s P/E. This suggests that market participants think Diodes will underperform other companies in its industry. Many investors like to buy stocks when the market is pessimistic about their prospects. It is arguably wor...