MY DUMBEST mistake was shorting when its price-to-earnings (P/E) ratio was around 200. No matter what its P/E is, there always seem to be buyers.

- O.W., online

The Fool responds: It's reasonable to steer clear of sky-high P/E ratios, as overvalued companies can be more likely to fall than to keep surging. But there's risk in actually putting money on the expectation that the stock will fall. Remember that a P/E ratio is just that - a simple ratio, dividing a stock's current price by its trailing year of earnings per share (EPS). Amazon's P/E has soared about 3,000 recently, because its EPS fell as it invests heavily in its future. The company's forward P/E, based on expected EPS for next year, is considerably lower, at 98.

Take P/Es into account, but also assess how much you expect a company's value to grow from current levels, factoring in its financial health, competitive strengths and potential. For many years, Amazon has been deemed overvalued, while its stock has kept growing.

Editor's note: The Motley Fool owns shares of Amazon, and its newsletters have recommended the stock.