JoymistaWhat Is the P/E Ratio and How Is It Calculated?
The P/E ratio is the share price divided by the annual earnings per share (EPS): how many dollars investors pay for each dollar of earnings.
Explained
A high P/E can mean the market expects strong growth, or that the stock is expensive; a low one can mean value or trouble. The useful comparison is with companies in the same sector and the company’s own history, not across sectors.
Example
Example with made-up numbersA share price of 100 dollars and annual EPS of 5 dollars give a P/E of 100 ÷ 5 = 20.
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Related terms
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