You're here:  Home --> Dictionary --> P --> P/E Ratio

Intrinsic Value
Value Stock
Stock Split
EPS

P/E Ratio
Term category: Stocks
In 10 words or less:  A ratio many people use to get a sense of a stock's valuation.

Definition: The price of the stock divided by the earnings per share. It's used to determine whether or not a stock is overvalued.

StockJargon Advice: People often get caught up in a stock's P/E ratio. It's not really all that great of a way of measuring a stock's true value. But it is a good way to get a quick idea of if it's overvalued compared to its competitors.

A stock with a low p/e ratio doesn't necessarily have to be a "good" one. Some industries have traditionally low p/e ratios, such as homebuilders. A technology company may be able to justify a p/e ratio of 40, but a homebuilder may only be able to justify a p/e of 12.

Related Articles

PE Ratio
This is one easy way a person can use numbers to determine the valuation of a stock…

PEG Ratio
For people who want to measure a company a little better, this ratio will help you determine if a stock is a good buy

Fundamental Analysis
This article explains some of the common ratios investors and analysts look at...

Related Books

The Five Rules for Successful Stock Investing by Pat Dorsey
Beating the Street by Peter Lynch
Wall Street Journal Guide to Understanding Money and Investments by Kenneth M. Morris
Investing for Dummies by Eric Tyson

# -A - B - C - D - E - F - G - H - I - J - K - L - M - N - O - P - Q - R - S - T - U - V - W - X - Y - Z