With earnings season at hand, many investors are ready to reassess whether their dollars are being put to the best use and whether their bets will pay off down the road.

Investment professionals use a company s price/earnings ratio to gauge the market s expectations for earnings growth. A high number indicates that the market has trumped up the stock price and is betting on increased earnings. A low number indicates that investors have less confidence in the company s potential to raise its earnings. Some investors consider P/E ratios a measure of how cheap or expensive a stock is.

Mutual funds have P/E ratios, too. Morningstar calculates this number by taking the weighted average of the price to earnings ratios of the stocks in a fund s portfolio (meaning that holdings are given proportionally more influence according to the percentage of equity assets they represent).

The rules for interpreting the P/E ratio aren t hard and fast. Morningstar points out that the ratio can be artificially inflated if a company has very weak current earnings, and thus a smaller number to divide its stock price by. Also, some fund managers particularly value investors -- may believe stocks with a low P/E are undervalued. For that reason, investors in value mutual funds wouldn t typically expect their P/E ratios to be lower, says Jim Holtzman, an adviser with Legend Financial.

P/E ratios can be calculated over different time spans and looking forward or backward. In either case, the price is an indication of what investors are anticipating, but if it s a forward ratio, it s using estimated future earnings. If it s looking at the prior 12 months, and earnings have been depressed, that would affect the equation, says Holtzman.

Because of the variety of strategies that funds use, investors shouldn't rely only on P/E ratios when making decisions, Holtzman says. He adds that by the time the data are generated for a mutual fund, conditions may have already changed especially when one stock can drive a fund s ratio up or down. Investors can get an idea of how a fund normally runs by looking back at quarterly or annual P/E ratios.

Still, a P/E ratio that's significantly higher or lower than its peers could be a red flag, or could at least merit a call to the fund s manager to see what s going on, Holtzman says. If a fund has a P/E ratio well above average, it could also mean earnings aren t keeping up with the stock prices of holdings.

In this week s fund screen, SmartMoney looked at funds that had a P/E ratio of at least 25% greater than that of the S&P 500 index. Morningstar calculates these by dividing the funds holdings current price by their trailing 12 months earnings per share and weighting them based on their proportion of the fund s total assets. By Morningstar s calculation, the S&P 500 has a P/E ratio of 14.28, so we looked at funds with a P/E ratio of at least 17.82.

There were 2,808 funds and share classes that passed the screen based on their P/E ratios alone. We then narrowed the field to funds that performed in the top 15% of their category year-to-date and for the trailing three- and five-year time periods for their peer group; received a four-star or better rating from Morningstar; and kept their annual expenses nominal. We were left with 13 funds, and included below the nine best performers among them this year.

Five of the nine were categorized as growth funds by Morningstar three small growth and two midcap growth. The other four included a real estate, consumer discretionary, large blend and small value fund.

One fund generated by the screen s results was Sequoia. The fund has just 10% turnover annually, a fraction of its category average according to Morningstar. For this fund, slow and steady wins the race, writes Morningstar analyst Michael Breen. Bob Goldfarb, the fund s manager, likes dominant franchises with strong returns on capital and clean balance sheets, he says. The fund s top holding, Berkshire Hathaway, has been in the portfolio for more than 10 years. Perhaps contributing to the funds high P/E ratio are Martin Marietta Materials (MLM), which has a P/E ratio of 55, and maintenance product company Fastenal with a P/E ratio of 39.5. Those stocks, which are top-10 holdings of the fund, have smaller forward-looking P/E ratios based on the mean earnings per share estimates for the next fiscal year of 22.5 and 24.5, respectively.

P/E ratios don t always tell the whole story. For example, Fidelity Small Cap Discovery was among the original results of this screen, but manager Chuck Myers prefers investing in out-of-favor stocks that are undervalued, according to Morningstar analyst Katie Rushkewicz. The fund s elevated P/E ratio may have more to do with its eighth-largest holding, office furniture and fireplace product company HNI, which has a P/E ratio of more than 900, but a forward ratio of just 17.2, according to Morningstar.

The Criteria: The funds on the table have a minimum investment of $5,000 or less. They are open to new money and charge an annual expense ratio no greater than 1.25%. In addition, their performance track records were in the top 15% for their category over the trailing three- and five-year time periods and year to date. All have at least four-star ratings from Morningstar, and, as usual, we did not include load funds.