Price-to-earnings (P/E) ratio is a valuation multiple that is calculated by dividing the market capitalisation of a company by its earnings or by dividing its share price by its earnings per share (EPS).
The P/E ratio is widely used by value investors in determining whether a company is valued correctly or not.
In simple terms, it helps investors determine whether paying the current price would be cheap, expensive or just right for the stock of a company.
Trivia: Robert Shiller, a Nobel Laureate, is accredited with being the creator of the P/E ratio.
Read More: Price-To-Earnings (P/E) Ratio
