What is P/E ratio?

The price-to-earnings (P/E) ratio is a financial ratio that measures the price of a company's stock relative to its earnings per share. It is calculated by dividing the market price per share of the stock by the earnings per share (EPS). For example, if a company has a P/E ratio of 20, it means that the market is willing to pay $20 for every $1 of earnings that the company generates.

The P/E ratio is often used to evaluate the relative value of a company's stock. A high P/E ratio may indicate that the market is optimistic about the company's future growth prospects and is willing to pay a higher price for its stock. A low P/E ratio may indicate that the market is less optimistic about the company's growth prospects and is willing to pay a lower price for its stock. However, it is important to note that the P/E ratio should be considered in the context of the company's industry and the overall market conditions.