InvestmentFinancial Glossary
PE Ratio (Price-to-Earnings)
Definition
A valuation metric calculated as the current share price divided by the earnings per share (EPS). A PE of 20 means investors are willing to pay Rs 20 for every Rs 1 of annual earnings. PE can be trailing (based on past 12 months' earnings) or forward (based on estimated future earnings).
Why It Matters
PE ratio is the most widely used stock valuation metric. The Nifty 50 has historically traded at a PE range of 15-25. Below 15 is considered cheap (buy territory), above 25 is expensive (caution territory). However, PE must be compared within the same sector — a PE of 30 is normal for IT companies but expensive for PSU banks.