Investing Dictionary
Company Health

What is P/E Ratio?

How expensive a stock is compared to its profits

Full Explanation

Price-to-Earnings ratio = stock price ÷ earnings per share. It shows how much investors pay for every $1 of profit. High P/E = expensive. Low P/E = cheap (or struggling).

Real-World Example

Stock at $100, earns $5/share → P/E of 20. Investors pay $20 per $1 of profit.

Pro Tip

Compare P/E to competitors, not random numbers.

Related Company Health Terms

Gross Margin

Revenue left after subtracting the direct cost of making the product

Guidance

A company's prediction for their own future performance

Operating Income

Profit from the core business before taxes and interest

Price-to-Book (P/B)

Stock price vs. the company's net assets

View all Company Health terms →

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