Glossary
Definition
Price-to-Earnings Ratio (P/E)
Stock price divided by earnings per share — a measure of how expensive a stock is.
The Price-to-Earnings ratio (P/E) is calculated by dividing a company's stock price by its earnings per share. It indicates how much investors are willing to pay per dollar of earnings. A high P/E suggests investors expect strong future growth; a low P/E may indicate undervaluation or lower growth expectations.
Frequently Asked Questions
What is a normal P/E ratio?
The historical average P/E for the S&P 500 is approximately 15–20x. Growth-oriented sectors like technology often trade at 30–60x earnings. Value investors typically seek companies trading below 15x earnings.