What is a P/E Ratio?

The P/E formula

P/E = Stock Price / Earnings Per Share

What different P/E ranges suggest (starting points for questions, never verdicts)

P/E Range	What It Suggests	Common In
Below 10x	Cheap or facing problems	Banks, energy, cyclical sectors
10-20x	Fairly valued for stable growth	Consumer staples, industrials
20-35x	High growth expected	Technology, healthcare
Above 35x	Very high expectations or speculative	Hypergrowth, unprofitable tech

Why a low P/E is not automatically cheap

A low P/E is not automatically a bargain. A stock at 5x earnings might be cheap, or it might be a company whose earnings are about to collapse. Always ask WHY.

Is Apple's P/E a premium or a discount?

Look up AAPL and find the P/E ratio. Then compare it to the sector median. Is Apple trading at a premium or discount to its peers?

Does a lower P/E mean a better investment?

Stock A trades at P/E 30x. Stock B trades at P/E 10x. Which is the better investment?

P/E shows price, not value

P/E tells you the price. It does not tell you the value. The best investors compare the P/E to the company's growth rate, quality, and predictability.

Check your understanding

Sit with the ideas.

Apple has a P/E of 28x and the tech sector median is 25x. What does this suggest?

Why:

Continue this lesson in the appAdaptive practice · saves your progress · remediation when you miss

§ 01The P/E formula

§ 02What different P/E ranges suggest (starting points for questions, never verdicts)

§ 03Why a low P/E is not automatically cheap

§ 04Is Apple's P/E a premium or a discount?

§ 05Does a lower P/E mean a better investment?

§ 06P/E shows price, not value