When buying a stock in most sectors, looking at its price-to-earnings ratio can be a quick and easy way to get an idea of how cheap or expensive it is compared with other stocks in its industry. With the big banks, however, the P/E ratio can often fall completely flat on its face and give investors an utterly incorrect picture of what the stock is worth. In this video, Motley Fool financial analysts David Hanson and Matt Koppenheffer talk about why the P/E is so misleading when looking at big banks, and where you should actually be looking.
David Hanson has no position in any stocks mentioned. Matt Koppenheffer owns shares of Bank of America. The Motley Fool recommends Wells Fargo and owns shares of Bank of America and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.