P/E ratio

The share price divided by a year of profit per share: how many dollars you pay for each $1 the company earns in a year.

A $200 share of a company earning $10 a share has a P/E of 20: you pay $20 for every $1 of yearly profit. A higher P/E usually means buyers expect profits to grow. It’s a description, not a verdict: it doesn’t say whether a stock is cheap or expensive.

More investing words

For education only, not investment advice.