In the current session, Zynga Inc. ZNGA is trading at $9.23, after a 2.04% spike. Over the past month, the stock increased by 13.51%, and in the past year, by 52.22%. With performance like this, long-term shareholders optimistic but others are more likely to look into the price-to-earnings ratio to see if the stock might be overvalued.

Assuming that all other factors are held constant, this could present itself as an opportunity for shareholders trying to capitalize on the higher share price. The stock is currently under from its 52 week high by 6.91%.

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.

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

Zynga Inc. has a better P/E ratio of 129.29 than the aggregate P/E ratio of 21.87 of the Electronic Gaming & Multimedia industry. Ideally, one might believe that Zynga Inc. might perform better in the future than its industry group, but it’s probable that the stock is overvalued.

price to earnings ratio is not always a great indicator of the company's performance. Depending on the earnings makeup of a company, investors may not be able to attain key insights from trailing earnings.