Interested in learning what the PE ratio in stocks is? Also known as price to earnings ratio, this metric is explained simply for beginners in this 5 minute video!

P/E ratio is a valuation metric that gives investors a quick look at how the market is currently valuing a company. It is a good first step when determining if the stock is currently at fair value, undervalued, or overvalued! Stocks with a low PE ratio, something around 10x, would be considered cheap and possibly undervalued. Inversely, stocks with a high PE ratio, say 50x or more, would be expensive and may be considered to be overvalued.

Price to earnings ratio can be found by dividing the stock’s current price per share, by its current earnings per share. The output gives you a multiple, sometimes referred to as a price multiple or earnings multiple by investors.

PE ratio really shows it's strength when comparing multiple companies, within the same industry, to understand how each company is valued. You can use the PE ratio to make a more informed decision about which company may be better value for your money.

Keep in mind that using PE ratio to compare companies across industries is not very useful. Different industries will have different standards and expectations that will effect PE ratio. For example, companies within the technology sector usually boast much higher PE ratios than companies within the consumer staples sector. For this reason, it is not recommended to use PE ratio as a basis for comparison across different industries and/or markets.

This video is part of my Stock Market Basics playlist.

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🕒 Time Stamps!
00:00 Intro
00:24 PE Ratio Explained
01:02 PE Ratio Calculation
01:30 Example
02:13 Comparison Between Companies
03:42 Comparison Across Industries
04:36 Finding PE Ratio
05:10 Thanks for Watching!

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Disclaimer
This channel is for entertainment purposes only and is not investment advice. All videos published on this channel are informational in nature and are not intended to give advice or recommendations about any particular security or investment. Before making any investment decisions, I would recommend you to speak to a financial professional that is qualified to provide advice.