Glossary

Price-earnings ratio

The ratio between the price of a stock and its earnings per share.

The P/E ratio is calculated by dividing the current share price, in euros, by the company's annual net profit per share. Also known as the multiple, it indicates how many times greater the stock price is than the company's expected profit per share, or how much an investor must pay for a profit per share of one euro.

The greater the earning power of a company, the higher the P/E ratio. The P/E ratio thus reflects the company's expected long-term earnings. While it is a popular standard for valuing stocks, there is no general rule which states that a particular P/E ratio always means a stock is undervalued or overvalued.

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