What is a stock's P/E?

A company's P/E can also be benchmarked against other stocks in the same industry or against the broader market, such as the S&P 500 Index. Analysts interested in long-term valuation trends can look at the P/E 10 or P/E 30 measures, which average the past 10 or 30 years of earnings.

What is the P/E ratio of a stock?

If a company’s stock is trading at $100 per share, for example, and the company generates $4 per share in annual earnings, the P/E ratio of the company’s stock would be 25 (100 / 4). To put it another way, given the company’s current earnings, it would take 25 years of accumulated earnings to equal the cost of the investment.

What is P/E ratio & why is it important?

P/E ratio, or price-to-earnings ratio, is a quick way to see if a stock is undervalued or overvalued. And so generally speaking, the lower the P/E ratio is, the better it is for both the business and potential investors. The metric is the stock price of a company divided by its earnings per share.