Price to Earnings Ratio
Tubopedia Mission
Price to Earnings Ratio, often referred to as P/E is a ratio that is calculated by taking a companies *Price Per Share / Earnings Per Share* . ## Why does it matter? Often times, new investors mistake share prices that are low for a company being cheap. But the number of shares a company has can greatly manipulate share price. The price to earnings ratio takes the number of shares out of the discussion by using the *[earnings per share](/posts/Earnings-Per-Share)*. Price to Earnings Ratio will tell you how much you are paying for $1 of earnings, rather than how much you are paying for a share. So if a company has P/E of 15, you are paying $15 for $1 of earnings. Low P/E ratios can be an indicator of an undervalued or cheap company. A company with a lower P/E ratio relative to competitors in a similar industry can be considered "cheap" ## Who uses it P/E Ratio is considered one of the most important metrics in evaluating a company according [Benjamin Graham](/posts/Benjamin-Graham) and [Warren Buffett](/posts/Warren-Buffett). And with Buffets success it has gone on to influence many Value Investors use P/E ratio to evaluate a company. ### Other Resources [P/E Ratio Basics](https://www.youtube.com/watch?v=4KkTGx2bK_4)