(also price-earnings multiple)
The current market price of a company share divided by the earnings per share of the company.
- As you will see, a stock with a low price-earnings ratio may not be undervalued and strategies that focus on just price-earnings ratios may fail because they ignore the growth potential and risk in a firm.
- For decades investors have used price-earnings ratios as a measure of how expensive or cheap a stock is.
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