What does P/E Ratio stand for?

The P/E Ratio stands for Price to Earnings Ratio, which is a financial metric used to evaluate the relative value of a company's shares. It is calculated by dividing the current market price of a company's stock by its earnings per share (EPS). This ratio helps investors gauge how much they are willing to pay for a dollar of earnings and is commonly used to compare the valuations of different companies within the same industry. A higher P/E ratio may indicate that the market expects future growth in earnings, while a lower P/E may suggest that the company is undervalued or experiencing difficulties. Understanding the P/E ratio is crucial for making informed investment decisions as it reflects investor sentiment about a company's potential for future profitability.