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RealMoney Radio Mailbag: Solving the Mystery of High P/Es

TheStreet.com Staff

Editor's note: The following are questions received from listeners of "RealMoney Radio." To send Cramer a question about topics from his radio show, click here. Listen to Cramer's latest radio show by clicking here.

Why do the video-game software stocks like Electronic Arts (ERTS) have such high P/E ratios?

-- Barry

Jim Cramer: These companies have high P/Es because their earnings are extremely lumpy and tend to come at the end of the cycle, while we are at the beginning of a cycle here. So, companies like Electronic Arts won't earn much this year, but in two or three years they will earn a great amount of money, and investors tend to look at where earnings will peak when valuing the stocks.

Want more Cramer? Check out Jim's rules and commandments for investing from his latest book by clicking here.