In the current market session, East West Bancorp Inc. (NASDAQ:EWBC) is trading at $34.15, after a 0.12% spike. However, over the past month, the stock fell by 11.57%, and in the past year, by 24.88%. Shareholders might be interested in knowing whether the stock is undervalued, even if the company is performing up to par in the current session.

The stock is currently higher from its 52 week low by 51.44%. Assuming that all other factors are held constant, this could present itself as an opportunity for investors trying to diversify their portfolio with Banks—Diversified stocks, and capitalize on the lower share price observed over the year.

The P/E ratio measures the current share price to the company's EPS. It is used by long-term investors to analyze the company’s current performance against its past earnings, historical data and aggregate market data for the industry or the indices, such as S&P 500. A higher P/E indicates that investors expect the company to perform better in the future, and the stock is probably overvalued, but not necessarily. It also shows that investors are willing to pay a higher share price currently, because they expect the company to perform better in the upcoming quarters. This leads investors to also remain optimistic about rising dividends in the future.

Most often, an industry will prevail in a particular phase of a business cycle, than other industries.

Compared to the aggregate P/E ratio of the 17.57 in the Banks—Diversified industry, East West Bancorp Inc. has a lower P/E ratio of 7.6. Shareholders might be inclined to think that they might perform worse than its industry peers. It’s also possible that the stock is undervalued.

There are many limitations to price to earnings ratio. It is sometimes difficult to determine the nature of the earnings makeup of a company. Shareholders might not get what they're looking for, from trailing earnings.