Definitions for "price-earnings ratio"
The most common measure of how expensive a stock is. The P/E ratio is equal...
A popular measure for comparing stocks selling at different prices in order to single out over or undervalued issues. The P/E ratio is simply the price per share divided by the company's earnings per share. However, P/E is not always an accurate guide to a stock's quality. Some people tend to think that a stock is inflated and drastically overvalued if its price is many times its earnings. Yet that same stock may be quite accurately valued to reflect the company's rapid growth and potential for high future earnings. When comparing P/Es it is therefore important to choose stocks in the same industry which are likely to face the same earnings prospects.
The P/E ratio is the most important yardstick for assessing the relative worth of a share. It reflects the markets appraisal of the shares future prospects. A high P/E ratio suggests a company has good prospects of achieving above-average growth in the future. The P/E ratio of a company is calculated by dividing its share price by its earnings per share.