Metric Layout

Price / Earnings (P/E) Ratio

Definition

The price-earnings (P/E) ratio is a value metric which defines the relationship between a stocks price and the underlying earnings of the stock. It is the amount that must pay for every 1 unit of earnings of the company. A higher P/E indicates a larger expected future earnings growth.

Price to Earnings Ratio

A high P/E could mean that a company is overvalued, a low P/S could mean that a company is undervalued

  • We can compare a company’s P/E to it’s industry to gauge how expensive the company is relative to that industry for an apples-to-apples comparison.
  • We can also compare a company’s P/E to its historical PE to gauge if it is cheaper vs. history.