price-earnings ratio investment & finance definition

One of the most popular measures for comparing stocks, measured by taking the price per share and dividing it by the amount of earnings per share. If this number is large, particularly against other companies in the industry, the stock is considered overvalued; similarly, low PE ratios may indicate that a company is undervalued. Many times technology companies have very high PE ratios, because of the expectations that their earnings will grow rapidly. Even after the technology market corrected from 2000 to 2002, many PE ratios still remain at relatively high levels.