Q. Why are my shares of Total SA down when oil prices are so high? — F.C., via the Internet

A. Although the giant oil company has benefited from the rise in oil prices, all energy companies must contend with rapidly rising costs of equipment, manpower, refining and marketing.

That makes capital spending to expand oil and gas supplies around the world more expensive and squeezes profit margins. That expansion competes with a shareholder expectation that companies will use their cash to increase share buybacks and dividends, which Total has done. Another concern for the industry is that a recession could reduce world-wide demand for crude oil, sending oil prices lower.

Shares of Paris-based Total (TOT) are down 12 percent this year following gains of 15 percent in 2007 and 14 percent in 2006. An indication of the company's popularity with US investors is the fact that 20 percent of its daily trading activity is done through American depositary receipts here.

Total merged with the Belgian firm Petrofina in 1999 and French firm Elf Aquitaine in 2000 to attain a scale and global diversity likely to provide profits for years to come. It has solid earnings and a stable balance sheet.

The consensus analyst recommendation on shares of Total is "buy," according to Thomson Financial. That consists of four "strong buys", five "buys" and two "holds."

Indicative of its vast exploration and production, Total recently signed a deal to build a petrochemical complex in Algeria, entered into an oil project in partnership with Venezuela and joined a consortium to develop an oil field in Kazakhstan. It also discovered oil off the shore of the Republic of Congo.

Total's earnings are expected to rise seven percent in 2008, with five-year annualised growth rate projected at six percent.

Q. How do you determine if a price-earnings ratio of a stock is too high? — G.J., via the Internet

A. The price-earnings ratio, or P-E, is a company's price per share divided by its earnings per share. For example, a $60 share with earnings of $3 a share has a P-E of 20.

Often stated is the "trailing" P-E, the stock price divided by earnings per share for the previous 12 months. But the "forward" P-E for the coming year is also used.

"An investor should compare the P-E of a stock to its specific peer group," said James Paulsen, chief investment adviser for Wells Capital Management in Minneapolis. "For example, you should compare a technology stock to other tech stocks."

Examine the company's growth rate and financial condition, he said. A small, rapidly growing company might have a higher P-E than the overall market but still be considered cheap.

"Historically, there has been an average P-E range for the total stock market of six on the low end and the low 20s on the high end, with the average about 14," Paulsen said. "P-Es were low from the mid-1970s to the mid-1980s because of high inflation and high interest rates, an indication that the investor must examine the overall environment."

(Andrew Leckey answers questions only through the column. Address inquiries to andrewinv@aol.com.)