Price Earnings Ratio – For every $1 of earnings, investors are willing to pay X amount.
Calculation – Stock price divided by 12 months’ earnings per share EPS (How To Find P/E And PEG Ratios)
e.g. P/E 20 = for every $1 of earnings, investors are willing to pay $20.00.
From Investopedia – The P/E can be found by comparing the current market price to the cumulative earnings of the last 4 quarters. Compare this number to other companies similar to the one you’re researching. If your company has a higher P/E than other similar companies, there had better be a reason. If it has a lower P/E but is growing fast, that’s an investment worth watching. (5 Essential Things You Need To Know About Every Stock You Buy)