What is P/E, Price to Earnings Ratio (Definition)
The price-to-earnings ratio is a simple valuation indicator that determines how a company is valued in comparison with its earnings.
- Stocks with lower P/E ratios are considered undervalued stocks and could offer higher returns.
- Stocks with higher P/E ratios are considered overvalued stocks and could not offer higher returns.
P/E, Price to Earnings Ratio Formula
The P/E ratio is calculated by dividing current market price of a share divided by its earnings.
Limitations of PE, Price to Earning Ratio
Types of P/E, Price to Earnings Ratio
There are two types of P/E (Price to earning) ratio.
- Forward P/E ratio
- Trailing P/E ratio
What is Forward P/E ratio
What is Trailing P/E ratio