Can someone explain P/E ratio in shares/investment.?
It’s the price-earnings ratio i.e. market price of share divided by earnings per share (EPS). For example, if a company is currently trading at $50 a share and earnings over the last 12 months were $2.00 per share, the P/E ratio for the stock would be 25.00 ($50/$2.00). EPS is normally taken from the last four quarters , but it can be taken as estimates of earnings expected in the next four quarters. Normally a low P/E is good as it indicates high return, but you have to look at the whole picture. For example, a very young, growing company might have a very high P/E but still be a good investment because future earnings are expected to be great. Also, it varies between industry sectors. P/E is one useful indicator when looking at a company but needs to be looked at in context and understood for it to be helpful.
