What is the Price to Earnings Ratio (P/E Ratio)?

The Price to Earnings ratio is a company’s stock price relative to its net income per share.

A low P/E indicates that a stock is trading at a low premium to earnings, which may indicate that the market thinks low relative growth rates are ahead for the company.

A company with a high P/E means investors are willing to pay a premium for growth, perhaps anticipating high future growth rates for the company. The P/E ratio is calculated by dividing the market value per share of a company by its earnings per share.