Price to Earnings Ratio – P/E Ratio

What is Price to Earnings Ratio – P/E Ratio

If you want to know how market has valued a company stock, Price to Earnings Ratio – P/E Ratio is important . Price Earnings ratio (P/E ratio ) is the ratio of company’s current share price to its earnings per share (EPS). P/E Ratio tells us how much do you pay for one rupee of a company’s earnings .PE ratio = market price per share / earnings per share .High PE ratio recommend that market participants are bullish on the stock .They are expecting the company to announce higher earnings growth in forthcoming days. It also helps in determining whether a company’s stock price is overvalued or undervalued . High P/E Ratio also indicate that the stock is being overvalued. Where as low PE ratio stock confirms market participants are not too bullish on the company’s future earnings growth. Low P/E Ratio can be interpreted as undervalued . Moreover the P/E ratio shows what the market is willing to pay today for a stock based on its past or future earnings.

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