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What does a stock’s price-to-earnings ratio tell me?
This widely used ratio reflects how expensive a stock is compared to the company’s earnings. Basically, a P/E ratio tells you how many years it would take to pay back your investment at the current earnings rate. To calculate the price-to-earnings ratio for a share of common stock, divide the current share price by the earnings per share. Thus, a $10 stock with earnings of $1 per share would have a P/E ratio of 10. Compare the P/E ratio of a given company to the P/E of other companies in the same industry. The higher the P/E ratio is for a company, the more positive investors are. A company that’s losing money cannot have a P/E ratio.Return to Questions
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