A valuation ratio of a company’s current share price compared to its per-share earnings.
Calculated as:
Market Value per Share
= ---------------------------
Earnings per Share (EPS)
In general, a high P/E suggests that investor are expecting higher earnings growth in the future compared to companies with a lower P/E.
However, the P/E ratio doesn’t tell us the whole story by itself. It’s usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company’s own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
Source: http://www.investopedia.com
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