Definition
P/E shows what investors pay for each dollar of profit. A high P/E usually means investors expect strong growth; a low one can mean the stock is cheap or that the business is in trouble. It is only meaningful compared with the company's own history and with peers.
Formula
P/E = share price / earnings per share (last 12 months)
Watch out for
A P/E of 30 can be high for a utility and reasonable for fast-growing software. Never judge it in isolation. It is also meaningless when earnings are negative.
Example
Hypothetical exampleA stock at $60 with earnings of $3 per share has a P/E of 20.