Definition

Price to earnings ratio (pe ratio)

Price to Earnings ratio (PE ratio): PE ratio is the ratio of the current stock price of a company divided by its earnings per share (EPS). It implies the sum of money an investor is ready to invest in a single share of a company for $1 of its earnings. P/E Ratio = (Current stock price of a company / Earnings per Share) A high P/E ratio relative to peer median or historical average possibly indicates two things, first might be the case that a company's stock is overpriced. Secondly, investors might be anticipating high growth rates in the future and therefore are willing to pay higher price.