A comparison of an individual stock's price-earnings ratio compared to the price-earnings ratio of an index. One calculates the price-earnings relative by dividing the stock's P/E ratio by that of the index. The price-earnings relative is a tool used to estimate a stock's value compared to the value of the market as a whole; in general, a high price-earnings relative is better for the stock and its shareholders.
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The price-earnings ratio of a stock in relation to the price-earnings ratio of the overall stock market, generally as measured by the S&P 500. This ratio is used as a tool to help determine if a stock's P/E ratio is reasonable.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.