What's "reality"? P/E need not have anything to do with NPV, which is the key. Suppose that I'll charge you $1000 today and next year and then give you $1000/

What's "reality"? P/E need not have anything to do with NPV, which is the key. Suppose that I'll charge you $1000 today and next year and then give you $1000/year "forever". The P/E analog this year and next is horrible, but that's a great investment (for you - it's lousy deal for me). My point is that P/E is only useful when a company is roughly stable now and into the future. If it isn't, P/E is a lousy predictor of NPV.