What is a P/E ratio (Price-to-Earnings)?
A common method of analysing a stock is studying its price-to-earnings ratio. A P/E ratio is calculated by dividing the stock’s price per share by its earnings per share. Investors often compare a stock’s P/E ratio to competitors or to the sector average to get an indication of whether it might be over or undervalued. Lower P/E ratios are often considered as value stock.
P/E = Price per share / Earnings per share
Please note that financial analyses and ratios should not be looked at in isolation when making investing decisions.
Introduction to stock trading
- What is a stock?
- Where do stocks come from?
- What is stock ownership?
- Why do people buy stocks?
- How could you lose money from buying stocks?
- What are stock markets?
- What is a stock broker?
- What is a stock price?
- What is a bid-offer spread?
- What are stock charts?
- What is commission?
- What are bullish vs bearish markets?
- What is technical analysis?
- What is fundamental analysis?
- What are analyst recommendations?
- What are stock financials?
- What is EPS (earnings per share)?
- What is a P/E ratio (Price-to-Earnings)?
- What is a P/CF ratio (Price-to-Cashflow)?
- What is ROE (Return on Equity)?
- What is Market Sentiment?
- What are Market Sentiment Indicators?
- What is the VIX?
- How does News and Social Media impact stocks?