What Is P/E Ratio? Meaning & Example
Definition
The price-to-earnings ratio divides a company's share price by its earnings per share. It shows how much investors pay for each dollar of profit.
Related terms
Earnings per share is a company's net profit divided by its number of shares outstanding. It shows how much profit is attributed to each share.
Value StockA value stock trades at a low price relative to measures like earnings, book value or cash flow. Investors buy them hoping the market will eventually recognize their worth.
Growth StockA growth stock belongs to a company expected to increase revenue and earnings faster than average. Investors often pay higher valuations for that potential.
What is P/E Ratio?
The price-to-earnings ratio divides a company's share price by its earnings per share. It shows how much investors pay for each dollar of profit.
Can you give an example of P/E Ratio?
A stock priced at $60 with earnings of $3 per share has a P/E ratio of 20.