Börsenlexikon: Price/earnings ratio (P/E ratio)

The price/earnings ratio (P/E ratio) indicates how often earnings per share are included in the stock price. A company with a relatively low P/E ratio is considered cheap, which indicates an undervalued share price. This is because earnings per share are not included in the share price often enough. A relatively high P/E ratio indicates an overvalued stock price. This is because earnings per share are included in the price too often. This ratio can be used to make comparisons between companies within the same industry or with historical P/E ratios of the same company.