The price-to-earnings ratio compares a company’s share price to its earnings per share. A P/E of 12 means investors are paying 12 birr for every 1 birr of annual profit. It is a rough measure of how much optimism is already priced in.
Key takeaways
- A high P/E means expectations of growth — or an overpriced share. The ratio alone cannot tell you which.
- P/E is only comparable between companies in the same industry.
- It is meaningless for a loss-making company, since earnings are negative.
