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.

1. Forward P/E ratio
2. Trailing P/E ratio

What is Forward P/E ratio

What is Trailing P/E ratio