In the current market session, XP Inc. XP is trading at $33.23, after a 1.30% increase. However, over the past month, the stock fell by 17.33%, and in the past year, by 21.50%. 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 higher its 52 week low by 4.97%. Assuming that all other factors are held constant, this could present itself as an opportunity for investors trying to diversify their portfolio with Capital Markets 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.

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

Compared to the aggregate P/E ratio of 17.27 in the Capital Markets industry, XP Inc. has a higher P/E ratio of 36.83. Shareholders might be inclined to think that XP Inc. might perform better than its industry group. It's also possible that the stock is overvalued.

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.