What is a P/E Ratio? — Understanding Valuation

§ 01

P/E = Stock Price / Earnings Per Share

§ 02

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

§ 03

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.

§ 04

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?

§ 05

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

§ 06

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.

Five questions · AI feedback

Sit with the ideas.

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

Why:

Sit with the ideas.

Other lessons in this course.