P/E Ratio

The P/E ratio is the most widely quoted valuation metric: it tells you how many years of earnings you're paying for. A P/E of 20 means the stock costs 20x annual EPS. Trailing P/E uses TTM earnings (actual). Forward P/E uses next year's estimated earnings (consensus). Interpretation: Low P/E (<15) may signal value or pessimism; high P/E (>25) suggests growth expectations or optimism. Sector variation: Tech/growth stocks often trade at 25-50x, while banks/utilities trade at 8-15x. Limitation: P/E breaks down when earnings are negative, volatile, or manipulated by accounting. Use alongside EV/EBITDA and P/S for completeness.