Definition

1. Noun:
   • A financial metric: The price-to-earnings ratio is a valuation measure calculated by dividing a company's current share price by its earnings per share (EPS) over a specified period, typically the last twelve months.
   • An indicator of market expectations: It is commonly used by investors to assess whether a stock is overvalued or undervalued relative to its earnings and to compare the valuation of different companies.

Usage Examples

• Noun:
  • A low price-to-earnings ratio might suggest the stock is undervalued.
  • Analysts often compare companies within the same industry using their price-to-earnings ratios.
  • The stock's high price-to-earnings ratio reflects strong investor confidence in its future growth.

Advanced Usage

• "Forward price-to-earnings ratio": A variation that uses forecasted future earnings instead of historical earnings in the calculation.

  • The forward price-to-earnings ratio is based on projected earnings for the next fiscal year.

• "Trailing price-to-earnings ratio": The standard calculation using the company's earnings over the past twelve months.

  • The trailing price-to-earnings ratio provides a view based on actual past performance.

Variants and Related Words

• P/E ratio (n): A common abbreviation for "price-to-earnings ratio."

  • The P/E ratio is a key figure in the financial report.

• Earnings multiple (n): Another term often used synonymously with the price-to-earnings ratio.

  • The company trades at a high earnings multiple.

Synonyms

• Valuation ratio: A broader category of metrics used to assess a company's value, which includes the P/E ratio.
• P/E: The standard abbreviated form.

Related Phrases

• Price-to-earnings growth ratio (PEG ratio): A refinement of the P/E ratio that also factors in a company's expected earnings growth rate.
  • The PEG ratio can provide a more complete picture than the price-to-earnings ratio alone.

Noun

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