PER (Price-to-Earnings Ratio) — Understanding a Key Stock Indicator


Understanding PER — How Investors Measure Stock Value


PER (Price-to-Earnings Ratio) — Understanding a Key Stock Indicator

The PER (Price-to-Earnings Ratio) is one of the most widely used indicators in stock investing.
It shows how much investors are willing to pay for a company’s earnings, helping measure whether a stock is undervalued or overvalued.

📊 What Is PER?

PER = Stock Price ÷ Earnings per Share (EPS)

For example, if a company’s stock is $100 and its EPS is $10,
PER = 100 ÷ 10 = 10

This means investors are paying 10 times the company’s earnings for one share.

💡 How to Interpret PER

  • High PER → Investors expect future growth (often seen in tech or growth stocks).

  • Low PER → Stock may be undervalued or have lower growth potential.

However, PER alone doesn’t tell the full story — it should be compared with:

  • Competitors in the same industry

  • The company’s growth rate

  • Market conditions

⚠️ Limitations of PER

  • It doesn’t reflect future earnings potential.

  • Companies with temporary losses may show misleading PER values.

  • Different industries have different average PER levels.

📘 In Short

PER helps investors quickly gauge valuation, but smart decisions require context and comparison.

Official Sources:


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