The price-to-earnings (P/E) ratio is a stock's share price divided by its earnings per share. It expresses how many dollars investors are paying for each dollar of annual profit, giving a quick read on how richly or cheaply a stock is valued relative to what it earns.
A P/E means little without context. A high ratio can reflect genuine growth expectations or simple over-enthusiasm; a low one can signal a bargain or a business in decline. P/E is only useful compared against the same company's history, its peers, or its own growth rate.
It also has limits. A "trailing" P/E looks at past earnings while a "forward" P/E uses forecasts that may prove wrong, and a company with no profits has no meaningful P/E at all. Treat it as one input among many, not a verdict.
Worked example
A stock trading at $100 with earnings of $5 per share has a P/E of 20 — investors pay $20 for each $1 of annual profit.
Related guides
This definition is general education, not investment advice. Markets — especially crypto — are volatile and you can lose money. Please read our disclaimer and see our methodology.