In the current market session, Wayfair Inc. (NYSE:W) is trading at $245.58, after a 1.32% gain. However, over the past month, the stock decreased by 19.88%, and in the past year, by 18.52%. 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 above its 52 week low by 11.08%. Assuming that all other factors are held constant, this could present itself as an opportunity for investors trying to diversify their portfolio with Internet & Direct Marketing Retail 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 earnings per share. 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.

Depending on the particular phase of a business cycle, some industries will perform better than others.

Wayfair Inc. has a better P/E ratio of 47.9 than the aggregate P/E ratio of 28.54 of the Internet & Direct Marketing Retail industry. Ideally, one might believe that Wayfair Inc. might perform better in the future than it's industry group, but it's probable that the stock is overvalued.

P/E ratio is not always a great indicator of the company's performance. Depending on the earnings makeup of a company, investors can become unable to attain key insights from trailing earnings.