investing

Lingo every investor should know

P-E: a fiscal fitness exercise
Next
4 of 9
Back

Even if you hated high school gym class, you have no reason to dread P-E. In fact, it's a good exercise for measuring the condition of a company. The price-to-earnings ratio is one of the most basic ways to gauge stocks.

To get the P-E ratio is no sweat. Just divide the stock price by its annual earnings per share. If a stock is selling for $10 and it earned $1 per share in its most recent fiscal year, the P-E is 10.

There's no right or wrong ratio: Some companies with low earnings have a high P-E because investors think earnings will grow in the future. Conversely, a reliably profitable company may have a relatively low P-E because its earnings are expected to remain stable. Those are often called value stocks, says Ferri. A P-E can change often, since it is dependent on profit levels and stock prices.


 

 

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

CDs and Investment

Move money to retirement account?

Dear Liz, Can I convert my regular investment account to a retirement account so that an investment made in that account is not taxed? If so, what type of retirement account can I choose? -- Jennifer Dear Jennifer, It's... Read more

advertisement

Blog

Sheyna Steiner

5 banks did very bad things

Five big banks are guilty of manipulating foreign exchange rates. They must pay some very big fines and the banks have promised to cease criminal activity.  ... Read more

Partner Center
advertisement

Connect with us