What is P/E Ratio?
Price-to-Earnings ratio: a stock's price divided by its earnings per share.
Formal Definition
The Price-to-Earnings (P/E) ratio divides a company's share price by its earnings per share (EPS). It is the most widely used equity valuation multiple. A high P/E can signal strong expected growth or overvaluation; a low P/E can signal undervaluation or weak prospects. P/E is only meaningful when compared within the same sector.
In Simple Terms
It tells you how many dollars investors pay for each dollar the company earns in a year. A P/E of 25 means you pay $25 for $1 of annual profit, so higher usually means the market expects faster growth.
Example
If Apple trades at $200 and earned $7 per share over the trailing twelve months, its trailing P/E is roughly 28.6.