P / E is a price / earnings abbreviation and is one of the most common key ratios used to see if a stock is worth buying or not. Price stands for the share price and earnings stand for the company’s profit. The key figure thus shows the price of one share in relation to the company’s earnings per share. Earnings per share are the company’s total profits divided by the number of shares in the company.
How to calculate P / E numbers?
You calculate a company’s P / E ratio by dividing the share price by the company’s earnings per share.
Why use P / E numbers?
When trying to decide whether or not to buy a stock, ie when valuing it, the P / E ratio can be useful as it shows how high or low the market values the stock. Then you always decide for yourself if you want to buy a stock that the market already values highly, or if you want to try and try to find shares that the market values low, but which you yourself believe.