Definitions for "P/E"
Keywords:  eps, earning, valuation, ratio, divided
Price/earnings ratio Shows a share's market price in proportion to its earnings. Calculated by dividing the share price by the reported or forecast annual earnings per share. For an investor this means that, if the P/E ratio is 10, the price is equivalent to ten years' earnings. The figure illustrates expectations of future company growth. In comparisons, it is best used for companies operating in the same field. Formula: Share price / Earnings per share
See Price/Earnings Ratio.
Price/earnings ratio is probably the most basic valuation tool, and gauges the value of a company's stock price as measured against its profits. By dividing the EPS figure into the stock price, you get a sense of whether the stock is overpriced or undervalued. A high P/E ratio indicates a pricey stock. Most analysts compare P/Es within industry sectors (rather than against the broad market average) to understand a company's valuation.