Understanding the Price by Earnings Ratio The price-to-earnings (P/E) ratio is a first and best ratio used to evaluate a company's valuation by comparing its current share price to its earnings per share (EPS). Definition and Formula The P/E ratio is calculated by dividing the market value per share of a company by its earnings per share (EPS). The formula is simple: P E = Market Value per Share / Earnings per Share Understanding the P/E Ratio High P/E Ratio: Indicates an overvalued stock or investors' expectations of high growth rates. Companies with high P/E ratios are often expected to have increased revenue in the future, leading to a surge in their current stock prices. Low P/E Ratio: Suggests an undervalued stock or that the company is doing exceptionally well relative to its past trends. Low P/E ratios can indicate that a company is undervalued and may be a good investment opportunity. No Earnings or Negative Earnings: Companies without earnings or with negative earnings do not have a P/E ratio. Types of P/E Ratios Trailing P/E Ratio: Relies on past performance, providing a more accurate and objective view of a company's performance Forward P/E Ratio: Uses future earnings guidance, providing insights into a company's expected performance and growth rate. PEG ratio explained https://youtu.be/0p0yTGekYFI?si=MriidZaLeXtfyUuK #investmentlearning #stockmarket #individualinvestors #investmenttalkies #investmentawareness #peratio #retailinvestors 0:00 PE Ratio 0:50 Sector PE 2:23 low PE Example 3:14 PEG Ratio 4:18 Forward PE 5:32 Factors affects