when thinking about P/E?

If I understand the question correctly, if they continue to earn the same amount during the next 6 years then yes they will have earned the total price of the stock.

I wouldn't look at the P/E ratio in these terms. This type of thinking is more based in the fixed income markets (see bond duration).

Look at P/E as the value that the market is placing on a company's earnings. You can look at historical P/E (called trailing P/E) but the best P/E ratio to look at is forward P/E - this is what the market is valuing the potential future earnings of the company. It is a much better indicator of where the market thinks a company's earnings are going to be going forward.

Use P/E as a tool to compare companies on a level playing field. I've used a similar example before:

Company A - Earns $2/share and trades at 10 P/E = $20.00

Company B - Earns $0.10/share trades at 20 P/E = $2.00

On a strictly valuation basis, Company A is a better value even though the price is 10 x higher.

Of course, there are reasons why a P/E is higher or lower. Maybe company B has much more potential for growth so people are willing to pay a higher amount for those earnings. Remember - the price of a stock is based on the future cash flow a company will generate and what portion of that cash belongs to you as part owner.

Hope this helps

It means it is selling for 6 times trailing earnings. So if they made $10 a share last year and are selling for $60 a share that is the price. The reason it is so cheap could be that last year was a fluke and in the future the profits might only be $1 so you would take 60 years for it to earn back your investment.

If you really could spend $60 to get $10 a year forever it would be a fantastic investment. If they paid out the entire profit as dividends the price would stay the same if they only give out part or none the price will go up because they reinvested the money.

P/E is a relative guage to determine the relative attractiveness of an investment. A good way to think about P/E is its inverse...i.e. E/P or the earnings yield. A company that is earning $10 dollars on a $100 dollar stock has an earning yield of 10%.

The higher the P/E, the better.