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.