Price Earnings Ratio (P/E Ratio)

A stock valuation method.  PER takes the market value per share and divides it by the earnings per share.  This ratio shows how much investors are willing to pay per dollar of earnings.  High P/E ratios can mean that a stock is overvalued or that the stock will have a future growth in earnings while a low P/E ratio means that a stock is either undervalued or the company’s earnings are declining.  The P/E ratio is commonly used by investors as one metric to determine which stocks to purchase.

Price Earnings Ratio =

Market Value per Share
Earnings per Share (EPS)