Price-to-Earnings (P/E) Ratio

The price-to-earnings ratio (P/E Ratio) is the relationship between the price of 1 company’s share and the annual net income earned by the company per share (Earnings Per Share, or EPS).

You can use P/E Ratios to figure out how well the company’s shares have performed over time and how they compare against other companies in the same sector. If the ratio is high, this means that the company is either overvalued or that people expect the company to grow quickly..

P/E Ratios are often calculated over ten and thirty year periods. Generally, P/E Ratios aren’t calculated for companies that are making a loss, so the ratio would be 0.

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