InsiderFlow › Glossary › What is the P/E ratio?
The P/E tells you how many times you're paying a company's annual earnings: a P/E of 20 means $20 of price for every $1 of profit.
It's calculated by dividing the share price by earnings per share (EPS). It's the world's most used valuation yardstick: all else equal, a low P/E signals a "cheap" stock, a high one an "expensive" stock — or one with big growth expectations.
The P/E always needs context: fast-growing companies deserve higher multiples, mature sectors lower ones. The S&P 500's historical average sits around 15–17; in euphoric times it exceeds 25.
On InsiderFlow these concepts come alive on real data: what big funds and insiders are buying, explained every day.
No: it can signal a declining business (a value trap). You need to understand why the market prices it cheaply.
That the company is losing money: the ratio loses meaning and other metrics are used.