PE=4=EXP; PE=100=CHEAP!

Traditional price earning ratio tells us lower the PE ratio , cheaper the stock and vice versa.
But there are times, when the reverse applies. This is especially true in the cyclical world of commodities. When earning peak in these stocks, the PE is at a all time low and when there is a marginal profit the PE is at a all time high. So, when a sugar firm is going through sweet times, it trades at a PE of 4 or 5, and when it makes a marginal profit the PE can be 100 or 1000.
(just take an example of a sugar co. with a equity of Rs 10 crore and earning of Rs 40 crore during the peak year and a marginal profit of Rs 1 crore during the bottom of the cycle. See how the PE moves when the market price fall from Rs 200 to Rs 40)
So, to argue that a sugar or another commodity stock is cheap at a PE of 4 is erronous. But that what an analyst did on CNBC while marketing a sugar stock, i think balarampur chini, which he was ofcourse already holding. The sad thing is the analyst knew the truth of commodity PEs but chose to ignore it!