Price-to-Earnings (P/E) Ratio

The P/E ratio divides a company's current share price by its earnings per share (EPS). It's the most-cited valuation multiple in equity research.

A higher P/E suggests investors expect higher future growth — or that the stock is over-priced. A lower P/E can mean the market expects weaker growth, or that the stock is under-valued. Comparison only makes sense within an industry; tech firms typically trade at higher P/Es than utilities.

Trailing P/E uses the last twelve months of earnings; forward P/E uses analysts' projected next-twelve-months earnings. Negative earnings make the ratio meaningless — most data providers display 'N/A'.