Valuation Terms
P/E Ratio
A ratio comparing a stock’s price to its earnings per share.
Also called: price to earnings, price-to-earnings ratio
What it means
The price-to-earnings ratio, or P/E ratio, compares the current stock price to earnings per share. A higher P/E can imply stronger growth expectations, lower risk, or simply a more expensive stock. A lower P/E can imply the opposite, but context matters.
Why it matters
It is one of the most common stock valuation metrics and one of the easiest to misuse if growth, risk, and accounting quality are ignored.