What is the price-to-earnings ratio?
The price-to-earnings ratio, or P/E ratio for short, is a method of measuring a company’s value. The P/E ratio is calculated by dividing the company’s market value per share by the earnings per share (EPS).
- A high P/E ratio suggests that investors expect a high level of earnings in the future, and that growth will be strong.
- A low P/E ratio could mean that the company is undervalued or current earnings are exceeding past trends.