Investment Dictionary

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Investment Dictionary - Price / Earnings (P/E ratio)

The stock price dividied by the earnings per share (EPS). For example, a stock that sells at $100 and earns $10 per share is selling at 10 times it's earnings. As a rule, a relatively high price-earnings ratio is an indication that investors feel the firm's earnings are likely to grow. Price-earnings ratios vary significantly amoung companies, amoung industries, and over time. One of the greatest influences on this ratio is long-term interest rates. In general, relatively high rates result in low price-earnings ratios; low interest rates result in high price-earnings ratios.

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