Price-to-Earnings Ratio (P/E)

The Price-to-Earnings Ratio (P/E) is a company's stock price divided by its annual profit per share. It tells you how many dollars investors are willing to pay for every dollar of profit the company makes. You'll see this number everywhere when researching stocks—it's one of the quickest ways to gauge whether a stock looks cheap or expensive compared to its earnings. A lower P/E might suggest a bargain, while a higher P/E could mean investors expect strong future growth. For example, if Company A trades at a P/E of 15 while Company B is at 30, Company A investors are paying less per dollar of profit—though that doesn't automatically make it the better choice.