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