The P/E ratio expresses how many years of current earnings would be needed to pay back the share price. Higher P/E implies higher expected growth or lower perceived risk.
P/E is sector-relative. Software might trade at 30–40× while banks trade at 8–12×. Always compare within an industry.
See also
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Open Decision Lab →Frequently asked questions
What is the Shiller P/E?
Cyclically adjusted P/E — uses 10-year inflation-adjusted earnings to smooth cycles. Useful for market-level valuation, not individual stocks.