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Investment
Price to Earnings Ratio
A quick way to see how expensive a stock is by comparing its current price to the company’s earnings per share.
A low P/E can mean the stock is cheap or that the company is in trouble. A high P/E can mean the market believes the company will grow fast. Always compare a company’s P/E to others in the same industry.
It’s one of the most popular quick valuation tools investors use every day.
It’s like asking how many years you’d have to work at a lemonade stand to earn back what you paid for it.
Real world: If a company’s P/E ratio is 15, it means investors are willing to pay £15 for every £1 the company earns in profit each year. Tech growth stocks often have high P/Es (40+) because people expect big future profits; stable companies like banks have lower ones.
💡 P/E ratio is investing’s price tag — know it before you buy so you don’t overpay.