P/E Ratio

Category: finance

A ratio for valuing a company that measures its current share price relative to its per-share earnings.

The P/E ratio is the "price tag" for future growth. A high P/E suggests investors expect higher earnings growth in the future compared to companies with a lower P/E. It is the gold standard for comparing the relative value of stocks within the same industry.

Common Examples

• The tech sector currently trades at a significantly higher P/E ratio compared to the broader industrial market average.
• Value investors often look for a low P/E ratio as a potential indicator of an undervalued or "bargain" equity asset.