What does price-earnings ratio mean?

The price-earnings ratio, also known as the P/E ratio, is a financial metric used to evaluate a company's current share price relative to its per-share earnings. It is calculated by dividing the current market price of a company's stock by its earnings per share (EPS). The P/E ratio is an important tool for investors as it provides insight into the valuation of a company's stock. A high P/E ratio may indicate that a company's stock is overvalued, while a low P/E ratio may suggest that the stock is undervalued. The P/E ratio is also used to compare the valuation of different companies within the same industry. It can be a useful indicator of market expectations for a company's future earnings growth potential. Investors often use the P/E ratio in conjunction with other financial metrics to make informed decisions about buying or selling stocks. However, it is important to note that the P/E ratio is just one of many factors to consider when evaluating a company's stock. Other factors such as the company's growth prospects, industry trends, and overall market conditions should also be taken into account.