P/E Ratio (Price-to-Earnings)

P/E ratio = Stock Price ÷ Earnings Per Share. A P/E of 20 means investors pay $20 for every $1 of annual earnings. Lower P/E suggests a stock may be undervalued or has low growth expectations. Higher P/E suggests overvaluation or high growth expectations. The S&P 500 historical average P/E is ~16. Tech growth stocks often trade at P/E ratios of 30-80. Value investors look for stocks with P/E below the market average relative to their growth rate.