Definition
A stock's price divided by its earnings per share: how many dollars investors pay for each dollar of annual profit. A high P/E signals high growth expectations; a low one signals cheapness, doubt, or a slow-growing business.
Why it matters
P/E is the quickest gauge of how expensive a stock, or an entire market, is relative to the profits behind it. It is context rather than a verdict: a high multiple can be earned by growth, and a low one can be a warning.
Example
A company earning $5 per share and trading at $100 has a P/E of 20. A rival earning the same $5 but trading at $60 carries a P/E of 12: the market expects less from it, rightly or wrongly, and the ratio is where that judgment shows up.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.