price-to-earnings ratio

Definition

Price-to-Earnings (P/E) Ratio
The Price-to-Earnings Ratio is a valuation metric that measures a company’s current share price relative to its earnings per share (EPS). It offers investors a snapshot of market expectations, suggesting that a high ratio indicates anticipated robust future earnings, while a lower ratio may imply undervaluation or concerns about performance. The ratio is computed by dividing the market price per share by the EPS from the most recent twelve-month period. Investors use the P/E ratio to compare companies within the same industry, assess relative value, and make informed decisions about potential growth opportunities, making it a staple in investment analysis.

See also