What does P/E Ratio mean?

The price-to-earnings (P/E) ratio is a stock's share price divided by its earnings per share — a P/E of 20 means investors pay $20 today for every $1 of yearly profit.

Price-to-earnings ratio = share price ÷ earnings per share. A P/E of 20 means investors pay $20 today for every $1 of yearly profit. Higher P/E often means investors expect strong future growth — but it can also signal overvaluation.