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Price-Earnings Ratio The price of a security per share at a given time divided by its annual earnings per share. Often, the earnings used are trailing 12 month earnings, but some analysts use other forms. The P/E ratio is a way to help determine a security's stock valuation, that is, the fair value of a stock in a perfect market. It is also a measure of expected, but not realized, growth. Companies expected to announce higher earnings usually have a higher P/E ratio, while companies expected to announce lower earnings usually have a lower P/E ratio. See also: PEG
Multiple. A stock's multiple is its price-to-earnings ratio (P/E). It's figured by dividing the market price of the stock by the company's earnings. The earnings could be the actual earnings for the past four quarters, called a trailing P/E. Or they might be the actual figures for the past two quarters plus an analyst's projection for the next two, called a forward P/E. Investors use the multiple as a way to assess whether the price they are paying for the stock is justified by its earnings potential. The higher the multiple they are willing to accept, the higher their expectations for the stock. However, some investors reject stocks with higher multiples, since it may be impossible for the stock to meet the market's expectations. Multiple ![]() What Does Multiple Mean? A term that measures a particular aspect of a company's financial well-being, determined by dividing one metric by another metric. The metric in the numerator is typically larger than the one in the denominator, because the top metric usually is supposed to be many times larger than the bottom metric. It is calculated as follows: Investopedia explains Multiple As an example, the term “multiple” can be used to show how much investors are willing to pay per dollar of earnings, as computed by the P/E ratio. Suppose one is analyzing a stock with $2 of earnings per share (EPS) that is trading at $20; this stock has a P/E of 10. This means that investors are willing to pay a multiple of 10 times earnings for the stock. Related Terms: Want to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit the webmaster's page for free fun content. |
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