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What are price earnings (PE) ratios? Need explanation

What are price earnings (PE) ratios? Need explanation

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Answer #1

The formula for Price earings ratio is equals to share price divided by Earnings per share.

PE Ratio = Share Price/ Earnings per share

The Price Earnings Ratio (P/E Ratio) is the relationship between a company's stock price and earnings per share.

It indicates the amount an investor can expect to invest in company in order to receive company's earnings. It is one of the widely used amongst investors and analysts. It reveals whether stock is overvalued or undervalued. It helps in determining the market value of a stock as compare to its earnings. If PE is higher than the industry average, then stock is considered as overvalued vice versa.

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