Fundamentals
P/E Ratio
Definition
Price-to-Earnings ratio — the stock price divided by earnings per share. A P/E of 20 means you're paying $20 for every $1 of annual earnings. Used to gauge if a stock is overvalued or undervalued. The S&P 500 average P/E is about 15-20.
Related Terms
Earnings Per Share (EPS)
A company's net profit divided by the number of outstanding shares. EPS indicates profitability and is used to calculate the P/E ratio. Higher EPS generally indicates better profitability.
Fundamental Analysis
Evaluating a company's intrinsic value by examining financial statements, earnings, revenue, debt, competitive position, and economic factors. Used primarily for long-term investment decisions.
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