The Price-to-Earnings (P/E) ratio is a financial metric that is used to evaluate the value of a company's stock. This ratio is calculated by dividing a stock's current market price per share by its earnings per share (EPS). The P/E ratio gives investors insight into how much they pay for each dollar of a company's earnings. A high P/E ratio may suggest a stock is overvalued, possibly due to high expectations for future earnings growth. Conversely, a low P/E ratio may indicate an undervalued stock, potentially presenting a buying opportunity. It's important to note that P/E ratios vary across industries, and comparing a company's P/E to its peers or industry average can provide a more meaningful assessment.
Fundamental Analysis - Technical Analysis from A to Z
The P/E ratio (i.e., Price/Earnings ratio) is calculated by dividing the security's current stock price by the previous four quarter's earnings per share (EPS). The P/E ratio shows how much an investor must pay to "buy" $1 of the company's earnings. Of course, investor expectations of a company's future performance play a heavy role in determining a company's current P/E ratio.