In the current session, Royal Bank of Canada Inc. RY is trading at $87.10, after a 2.45% gain. Over the past month, the stock increased by 5.61%, and in the past year, by 15.82%. 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 3.85%.

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The P/E ratio is used by long-term shareholders to assess the company's market performance against aggregate market data, historical earnings, and the industry at large. A lower P/E indicates that shareholders do not expect the stock to perform better in the future, and that the company is probably undervalued. It shows that shareholders are less than willing to pay a high share price, because they do not expect the company to exhibit growth, in terms of future earnings.

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

Royal Bank of Canada Inc. has a lower P/E than the aggregate P/E of 28.19 of the Banks industry. Ideally, one might believe that the stock might perform worse than its peers, but it's also probable that the stock is undervalued.

There are many limitations to P/E 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.