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Glossary

What is P/E ratio?

The P/E ratio shows how many dollars people pay for each dollar a company earns in a year.

The simple explanation

P/E stands for price to earnings. You divide the share price by the company's earnings per share. A high P/E usually means investors expect strong growth. A low P/E can mean slower growth or a bargain, so it needs context.

An example

A stock priced at 100 dollars that earns 5 dollars per share has a P/E ratio of 20.

Why it matters

It is one quick way to see if a stock is priced richly or cheaply compared with similar companies.

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Educational information, not financial advice.