◈ GLOSSARY · INVESTING
P/E Ratio (Price-to-Earnings).
A definition, in plain English — with the books that teach it.
Reviewed by ClearValue Editorial Team · Jun 27, 2026
◈ DEFINITION
What it means
Definition
The P/E ratio is the stock's price divided by its earnings per share over the last 12 months. It tells you how many dollars investors are paying for every dollar of profit the company makes. A high P/E usually means the market expects strong growth ahead; a low P/E can mean a bargain or a business in trouble. It's a starting point for a conversation, not an answer.
◈ IN PRACTICE
Example
If a stock trades at $80 and earned $4 per share last year, its P/E is 20. You're paying $20 today for every $1 of current annual earnings. Compare that to peers in the same industry and to the company's own 5- and 10-year averages before drawing conclusions.
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