All About P/E Ratio In Respect Of Stock Valuation

P/E or price to earnings ratio is an important metric that helps in adjudging valuation of the stock. Simply, speaking it is reflective of the price the investor or market as a whole is willing to pay today as against the company's future or past earnings. With the P/E measure in hand, the stock can be understood with respect to its valuation i.e. whether it is undervalued or over-valued. At the same time, it pays to compare a given stock's valuation with other stocks from the same space.

Say, for instance, a P/E of 20 times highlights that in the expectation of earning Rs. 1, the market is ready to pay Rs. 20. It is to be noted, that price is not reflective of the absolute earnings and only is an expectation on annual earnings growth of the company.

A high PE signifies expectations of high earnings growth over the coming year and vice-versa.

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