What is Price-to-Earnings ratio (P/E)?

The price-to-earnings (P/E) ratio compares a stock's price to its earnings per share over the last 12 months. A P/E of 20 means investors pay $20 for every $1 of annual profit. Used to compare valuation — a high P/E can signal growth expectations or overvaluation; a low P/E, undervaluation or problems. Always compare within the same sector.