What Is the P/E Ratio and How Should You Use It?

The P/E ratio compares a company's share price to its earnings per share. A higher P/E can indicate higher growth expectations, while a lower P/E may signal value or concern.

Always compare P/E against the company's own history and its sector peers. A bank and an IT company will naturally trade at different multiples.

Combine P/E with growth (PEG), return ratios such as ROE and ROCE, and balance sheet strength before forming a view.