Plain-English definitions, reviewed by an independent investor
P/E Ratio (Price-to-Earnings)
The P/E ratio tells you how much investors pay for each dollar a company earns. A higher P/E means the market expects…
The P/E ratio tells you how much investors pay for each dollar a company earns. A higher P/E means the market expects more growth.
P/E = Price per Share ÷ Earnings per Share (EPS)
Why it matters
It is the fastest way to gauge whether a stock looks cheap or expensive relative to its profits.
Common confusion
P/E is not the same as PEG. PEG also weighs growth, so a high P/E can be fair if earnings grow fast.
Frequently Asked Questions
Is a high P/E good or bad?
Neither by itself. A high P/E can signal growth hopes or an overpriced stock; compare it with peers and the growth rate.
What is a low P/E ratio?
A low P/E can mean a cheap stock or a company with problems. Always check the reason behind it.