The P/E Ratio as One of the Most Important Trading Tools
Often, stock trading books, seminars and websites will refer to the P/E ratio. It certainly is one of the most important trading tools that is commonly understood by most professional stock traders. The P/E ratio refers to the price earnings ratio. It is the market price of a share of stock in a company divided by the total amount that the company has earned per share over a period of twelve months.
P/E ratios have generally been used as a tool to compare different stocks. A higher P/E ratio usually means that investors believe that a company will likely have good earnings in the future. On the other hand, a lower P/E ratio indicates that investors are critical of a company's future prospects.
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