Chances are you've heard the term
price/earnings ratio (P/E ratio) used before. When it comes to valuing stocks, the price/earnings ratio is one of the oldest and most frequently used metrics.
Although a simple indicator to calculate, the P/E is actually quite difficult to interpret. It can be extremely informative in some situations, while at other times it is next to meaningless. As a result, investors often misuse this term and place more value in the P/E than is warranted.
In this tutorial, we'll introduce you to the P/E ratio and discuss how it can be used in security analysis and, perhaps more importantly, how it should not be used.
If you don't have a solid understanding of stocks and how they trade on the stock market, we also suggest that you check out our
Stock Basics tutorial.
