Price/Earnings and Price/Book Ratios

Price/earnings and price/book ratios, too, are included in the Morningstar style box, but they are worthy of separate consideration. Just as there are degrees of market capitalizations, there are degrees of price multiples. Let's look at some hypothetical examples. The ABC Aggressive Investors and the XYZ Mid-Cap Growth are both growth funds, but the XYZ fund's P/E ratio of 27.1 is significantly higher than the ABC fund's 12.2. That means the XYZ fund courts more price risk (the risk that securities might be overvalued by the market) than ABC Aggressive Investors.