Price to Earnings Ratio (P/E ratio)

Tolu Updated by Tolu

Price to earnings ratio (P/E ratio)

This is a company’s share price in relation to its earnings per share. It tells you the share price investors are willing to pay per $1 of earnings. For example, if a company’s P/E ratio is 5, it means investors are willing to pay $5 per $1 of earnings.

A low or high P/E ratio can tell you whether a company is undervalued or overvalued. However, this isn’t always the case so ensure you do your proper research on the company itself before making your decision and also compare the company’s P/E ratio with other companies in its industry.

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