P/E ratio or price/earnings ratio is a metric that investors use to evaluate a stock. This ratio is widely used and has been around a long time.
At its core, P/E is the share price divided by the total earnings per share(EPS). The share price is what the going rate is for the stock on the market and EPS is the company’s net income divided by the total number of shares.
Watch this video for an example…
It’s Dangerous to go Alone
While P/E ratio is useful for comparing companies within an industry – it can be dangerous to make assumptions based on this alone. Always consider that P/E ratio is only useful when in the right context and does not reveal much on its own.
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