Right now, Yum Brands Inc. YUM share price is at $95.87, after a 0.76% drop. Over the past month, the stock increased by 14.13%, but over the past year, it actually decreased by 10.88%. With questionable short-term performance like this, and great long-term performance, long-term shareholders might want to start looking into the company's price-to-earnings ratio.

The stock is currently above from its 52 week low by 74.47%. Assuming that all other factors are held constant, this could present itself as an opportunity for investors trying to diversify their portfolio with Restaurants stocks, and capitalize on the lower share price observed over the year.

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.

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

Yum Brands Inc. has a lower P/E than the aggregate P/E of 159.35 of the Restaurants industry. Ideally, one might believe that they 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.