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P/E
(Price-to-Earnings Ratio)
The P/E (Price-to-Earnings) ratio compares a stock's price to its EPS, showing how much investors pay per dollar of earnings. Calculated as: Market Price per Share / EPS.
A high P/E (e.g., 50x) suggests growth expectations (Tesla historically traded at 200x), while low P/E (e.g., 10x) may indicate undervaluation or risks. The S&P500's average P/E is ~20x (2023). Variations include forward P/E (projected earnings) and Shiller P/E (10-year inflation-adjusted earnings). Unlike P/B (book value), P/E ignores debt but helps compare firms in the same industry. Value investors like Warren Buffett seek low P/E stocks with strong fundamentals.
A high P/E (e.g., 50x) suggests growth expectations (Tesla historically traded at 200x), while low P/E (e.g., 10x) may indicate undervaluation or risks. The S&P500's average P/E is ~20x (2023). Variations include forward P/E (projected earnings) and Shiller P/E (10-year inflation-adjusted earnings). Unlike P/B (book value), P/E ignores debt but helps compare firms in the same industry. Value investors like Warren Buffett seek low P/E stocks with strong fundamentals.