AP MacroeconomicsFinancial Markets & Investing
Price-to-Earnings (P/E) Ratio
The P/E ratio is a stock's price divided by its earnings per share, showing how much investors pay per dollar of earnings.
A high P/E can signal that investors expect strong growth, or that a stock is overvalued; a low P/E can signal a bargain or weak prospects. It is used to compare valuations across companies.
Formula / Example
P/E ratio = share price ÷ earnings per share (EPS).