Definition

The Price-to-Earnings (P/E) ratio measures how much investors are willing to pay for each dollar of a company's profit. A higher P/E means the stock is more expensive relative to its earnings, often reflecting strong growth expectations. However, a very high P/E can also signal overvaluation. Investors generally look for a P/E at or below the historical average, though the ideal range varies by sector. An entry at or below the average P/E is typically considered an attractive valuation.