What is the P/E ratio?

The P/E ratio, or price-to-earnings ratio, is a valuation metric that compares a company's stock price to its earnings per share (EPS). It is used to determine whether a stock is overvalued or undervalued and to compare the valuations of individual stocks or entire stock indexes, such as the S&P 500. The P/E ratio is calculated by dividing the stock's current price by its latest earnings per share. A higher P/E ratio indicates that investors are willing to pay a higher share price now due to growth expectations in the future.