- Joined
- Dec 4, 2013
- Messages
- 36,463
- Reaction score
- 35,330
- Gender
- Male
- Political Leaning
- Liberal
You have that wrong
P/E increases on the expectation the company is going to increase profits and be a stronger company in the future. A low P/E is generally a sign the companies predicted future is not one of growth and larger profits
P/E stands for "Price Earnings Ratio." It's not the "Price to Expected Earnings" ratio.
What is the 'Price-Earnings Ratio - P/E Ratio'
The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio is also sometimes known as the price multiple or the earnings multiple.
The P/E ratio can be calculated as:
Market Value per Share / Earnings per Share
For example, suppose that a company is currently trading at $43 a share and its earnings over the last 12 months were $1.95 per share. The P/E ratio for the stock could then be calculated as 43/1.95, or 22.05.
EPS is most often derived from the last four quarters.
Read more: Price-Earnings Ratio (P/E Ratio) Price-Earnings Ratio (P/E Ratio)
Follow us: Investopedia on Facebook