Definition of Average P/E Ratio

P/E stands for price/earnings. The average P/E ratio is the current price (market price) of a share divided by the earning per share.

The P/E ratio is expressed as a multiple of earnings. Greater the P/E ratio, greater the amount the investor is willing to shell out. In case a company goes into loss, the P/E ratio is considered to be zero or is said to fail to exist.

Points to remember:

• High P/E ratio means that the stock is expected to rise in value in future.
• A low P/E ratio doesn’t necessarily suggest loss, but might also suggest undervaluation.
• When P/E ratio is greater than average, it is believed that the stock market is overvalued.