Critical to the process of stock selection is the identification of quality companies with attractive fundamental characteristics and a positive trading outlook. However, tilting the investment scale towards such issues without considering appropriate valuation criteria is a blinkered approach. Determining the value of a company is a crucial dimension to any stock-picking strategy and, to this end, various yardsticks have been employed by the investment community. Typical measures focus on cash-flow, asset values, debt positions, returns on equity and dividend yield.

However, the most widely used selection tool is the price/earnings (p/e) multiple, which is the ratio of a company's stock price to its earnings-per-share. As a rule of thumb, the higher the p/e, the more expensive the company is considered. However, the ratio offers little insight when taken in isolation and consequently the more complicated task lies in its relative interpretation.

Within Sharetrack for example, the price of AstraZeneca trades on a multiple of 29 times earnings-per-share. This may appear expensive given an implied premium of 30 per cent to the British market average but relatively cheap given a 15 per cent discount to its pharmaceutical peer group. Essentially, the key issue facing investors in deciding whether this is an appropriate multiple is the stock's relative ability to deliver good and secured returns over the long term.

While quality clearly comes at a price, it would appear that Sharetrack investors have been willing to pay such lavish premiums. As a case in point, AOL and Dell rank among the five most popular choices, even though both trade on racy multiples of 368 times and 67 times respectively.

This begs the question for Sharetrack participants: Where does the relative value lie? Are the Irish banks looking attractive given their substantial discount to British peers? Is the drugs universe once again promising given recent significant multiple declines?

While the p/e is not the final measure of a stock's attractiveness, taken in context, it should play an important role in any investor's toolkit. Laura DeVoy is a researcher in the private client department of Goodbody Stockbrokers.

Cisco Systems is the latest company to have a 2:1 share split, Which took effect on 21st June. All portfolios containing the stock have been adjusted accordingly.