P/E ratio (price-to-earnings)
Also called: P/E, price to earnings ratio
The price-to-earnings ratio is a stock's price divided by its earnings per share, showing how much investors pay for each dollar of profit.
A high P/E suggests investors expect strong growth; a low one can mean a bargain or a business in trouble. Compare P/Es within the same industry.
Formula
P/E = share price ÷ earnings per share
Related terms
- Stock: A stock is a unit of ownership in a company.
- Market capitalization: Market capitalization is the total value of a company's shares: the share price multiplied by the number of shares outstanding.
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