What is meant by the term "price-earnings ratio" (P/E)?

Question

What is meant by the term "price-earnings ratio" (P/E)? What might justify Starbucks' P/E ratio of 35 compared to McDonald's P/E ratio of 17

Answer 1

Let say,

Price of DEMA stock = $30 per share
The stock's earnings per share = $2 per share

P/E = 30 / 2 = 15

Lower P/E is better as it indicates the stocks is not overvalued. P/E can vary across industries and markets. and if the P/E is higher than the other, it shows that investors have more faith in the company's growth; that they are willing to pay premium for it.

What is P/E by Stock Investment Made Easy
http://www.stock-investment-made-easy.com/price-to-earnings-ratio.html

Answer 2

It is the current sales price of all of the outstanding common stock, divided by next year's estimated earnings. High P/E ratios... over 15 are indications the stock is over priced.

Answer 3

P/E is price of the shares divided by the earnings per share.
to justify the higher p/e on Starbucks is because investors think the earnings are going to be better with them. i would check to see witch one has the higher rate on return on equity (ROE). that would you witch of the two is growing faster.

Answer 4

portional electronic