P/E (price / earnings): what it is and how to read it

What it is

How many years of current earnings you're paying for. A P/E of 20 means you pay 20 times the annual earnings per share. Lower = cheaper (in principle).

How to read it

Always compare companies in the same sector: a low P/E can reflect little growth and a high P/E can reflect high expectations. A single number doesn't tell you whether a stock is expensive or cheap; it helps you ask why.

Educational information; not a recommendation to buy or sell.