What is P/E Ratio?
Price-to-Earnings ratio: a stock's price divided by its earnings per share.
In Depth
The Price-to-Earnings (P/E) ratio compares a company's share price to its earnings per share (EPS). It's the most widely used valuation metric in equity analysis. A high P/E may indicate that investors expect strong future growth, or that a stock is overvalued. A low P/E may indicate undervaluation or weak prospects. Always compare P/E within the same sector — a software company at a P/E of 30 may be reasonable, while a bank at the same P/E may be expensive.
Example
If Apple trades at $200 and earned $7 per share over the trailing twelve months, its trailing P/E is roughly 28.6.