P/E Ratio (Price-to-Earnings)
A stock's price divided by its earnings per share — the most common valuation metric.
In depth
P/E tells you how many dollars investors are paying for each dollar of company earnings. A P/E of 20 means the market values the stock at 20 years of current earnings. "Trailing P/E" uses last 12 months of earnings; "forward P/E" uses next 12 months of estimates. Compare a P/E to: the company's history, peers in the same industry, and the broader market average. Low P/E may indicate undervaluation OR poor growth prospects; high P/E may signal premium quality OR overvaluation.
Example
If a stock trades at $100 and earned $5 per share last year, its trailing P/E is 20.