Please explain the P/E which is listed on a stock's performance chart. Eg. 17.25?

Question

The simpler and clearer the explanation, the better. Thanks.

Answer 1

The P/E is the price-earnings ratio which is the fraction of the stock price over earnings per share.

Say a stock trades at $20.01 and earns $1.16 per year. You would take 20.01 (price) divided by 1.16 (earnings) which makes 17.25 (P/E).

The ratio also tells you  that the company has to earn $1.16 every year for 17.25 years to earn today's share price.  ($1.16 times 17.25 years = $20.01)

The ratio is one of the indicators that tell you how "expensive" a stock is. The higher the P/E ratio, the more expensive the stock.

Answer 2

P/E = Price per share / Earnings per share

The earnings number is usually for the trailing year.  So if a company reported its quarterly earnings today, you would also add in its previous 3 quarters' earnings, to get the earnings per share (EPS) number.

The thought behind P/E is to be able to understand how much you're paying for each unit of earnings (net income) that the company earns for its stockholders.  Typically, companies that are growing quickly and expected to continue to grow quickly have a higher P/E ratio, as people feel that the company's growth justifies a higher price relative to earnings.

P/E is also useful in comparing two similar companies, like for example Coca-Cola and Pepsi.

For more info on P/E, you can visit the link below:

Answer 3

P/E is Price to Earnings. Price per share divided by earnings per share.  This is the ratio which compares the price of the stock to the company's earnings. So, a high P/E would say that the investor is paying MORE per unit of earnings than for a lower one.

Answer 4

P/E is Price to Earnings. You find it like this:

P = the share price (this changes at all times), you can find it on the performance chart

E = the earnings per share (this changes every quarter), earnings per share is the company's net income divided by the number of common shares outstanding (these numbers can be found at the bottom of each company's income statement)