Definition

Noun: - Price-to-earnings ratio: A financial metric used to evaluate a company's current share price relative to its per-share earnings. It is calculated by dividing the market value per share by the earnings per share (EPS). A higher P/E ratio can indicate that the market expects higher future growth, or that the stock is overvalued. A lower P/E ratio may suggest the stock is undervalued or that the company is experiencing difficulties.

Usage Examples

• Noun:
  • The company's high p/e ratio suggests investors are optimistic about its future profits.
  • Value investors often look for stocks with a low p/e ratio.
  • Analysts compared the p/e ratios of several tech companies before making a recommendation.

Advanced Usage

• "Forward p/e ratio": A variation that uses forecasted future earnings for the next 12 months instead of past earnings.
  • The forward p/e ratio is often lower because of projected earnings growth.
• "Trailing p/e ratio": The standard calculation using the company's earnings over the past 12 months.
  • The trailing p/e ratio is based on actual, reported financial data.

Variants and Related Words

• PE ratio (n): A common abbreviated form of "price-to-earnings ratio." It has the same meaning.
  • The PE ratio is a key indicator for many traders.
• Earnings multiple (n): Another term for the P/E ratio, emphasizing that it is a multiplier applied to earnings.
  • The stock is trading at an earnings multiple of 20.

Synonyms

• Price-earnings ratio: The full, formal term.
• Earnings multiple: A synonym focusing on the multiplicative aspect of the valuation.

Related Phrases

• "p/e ratio expansion/contraction": Refers to an increase or decrease in the average P/E ratio of a stock or the overall market, often driven by changes in investor sentiment.
  • The sector benefited from significant p/e ratio expansion during the bull market.

Noun

1. (stock market) the price of a stock divided by its earnings