Price-to-Earnings Ratio: What PE Ratio Is And How to Use It
A company’s price-to-earnings ratio, or PE ratio, is a single number that packs a lot of punch, and one of the most common ways to value a company’s stock shares. But what is it, and what makes it so important?
What is PE ratio?
PE ratio is a metric that compares a company’s current stock price to its earnings per share, or EPS, which can be calculated based on historical data (for trailing PE) or forward-looking estimates (for forward PE). It’s a standard part of stock research investors use to:
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Compare the stock prices of similar companies to find outliers.
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Decide, based on its value, if they should buy, sell or hold any particular stock.
“PE ratio” may sound technical, but it’s really just a comparison of how the public feels…
