Stock Market Glossary
P/E ratio
Price-to-earnings ratio – how many annual earnings the current share price costs.
In brief: Price-to-earnings ratio – how many annual earnings the current share price costs.
Meaning in practice
The P/E ratio relates the share price to earnings per share (EPS). Low P/E ratios are considered cheap, high ones are considered expensive – always in the context of growth, industry and interest rate environment. A single P/E ratio without comparison says little.
Context for investors and traders
When analysing a company, this term is meaningful only alongside the business model, industry and development across several reporting periods. One-off effects, accounting choices and the corporate cycle can move individual metrics.
How to use this in practice
Use the term first to describe the situation and add verifiable data: time frame, benchmark, costs and liquidity. Only then does it become an assessment that can be connected to an investment objective and risk budget.
What to keep in mind
Avoid false precision. Many market terms describe probabilities or historical patterns; they neither guarantee a return nor replace the review of a specific security.
