P/E Ratio (Price-to-Earnings)

The P/E ratio divides a stock's share price by its annual earnings per share. A P/E of 20 means investors are paying $20 for every $1 of earnings. Higher P/Es imply higher growth expectations; lower P/Es can signal value or trouble. P/E is most useful when compared against a company's sector, historical average, or the broader market (the S&P 500 has historically averaged around 16–18).