PE Ratio Explained Simply | Finance in 5 Minutes!

Interested in learning what the PE ratio in stocks is? Also known as price to earnings ratio, this metric is explained simply for beginners in this 5 minute video!

P/E ratio is a valuation metric that gives investors a quick look at how the market is currently valuing a company. It is a good first step when determining if the stock is currently at fair value, undervalued, or overvalued! Stocks with a low PE ratio, something around 10x, would be considered cheap and possibly undervalued. Inversely, stocks with a high PE ratio, say 50x or more, would be expensive and may be considered to be overvalued.

Price to earnings ratio can be found by dividing the stock’s current price per share, by its current earnings per share. The output gives you a multiple, sometimes referred to as a price multiple or earnings multiple by investors.

PE ratio really shows it's strength when comparing multiple companies, within the same industry, to understand how each company is valued. You can use the PE ratio to make a more informed decision about which company may be better value for your money.

Keep in mind that using PE ratio to compare companies across industries is not very useful. Different industries will have different standards and expectations that will effect PE ratio. For example, companies within the technology sector usually boast much higher PE ratios than companies within the consumer staples sector. For this reason, it is not recommended to use PE ratio as a basis for comparison across different industries and/or markets.

This video is part of my Stock Market Basics playlist.

🕒 Time Stamps!
00:00 Intro
00:24 PE Ratio Explained
01:02 PE Ratio Calculation
01:30 Example
02:13 Comparison Between Companies
03:42 Comparison Across Industries
04:36 Finding PE Ratio
05:10 Thanks for Watching!

💻 Check out the Stock Market Basics Playlist for more videos like this!

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*Disclaimer*
This channel is for entertainment purposes only and is not investment advice. All videos published on this channel are informational in nature and are not intended to give advice or recommendations about any particular security or investment. Before making any investment decisions, I would recommend you to speak to a financial professional that is qualified to provide advice.

[Rynance]

How do you use PE ratio to value a company?

[kortyEdna]

I've owned NVDA for over 8 years. It's been up and down, but I believe in Jensen Huang and will stick with NVDA until Jensen says otherwise. I know that sounds crazy, but when the financial statements/Jensen, (same to me) tell me to sell, I will. I'm sure I won't sell at the top, but that's OK.

[thuylamson-zt]

Its worse here, our economy is like a flailing fish, fighting for its life. The normal state of the U.S. economy is actually very bad. Because of this it goes into convulsive spasms fighting to grow any way it can out of desperation. Tricks, gimmicks, rule changes try to stimulate the economy and prevent it from falling but they only bring temporary relief to people since, when you factor in inflation we are declining.

[JefferyDuns]

Every week I buy more of whatever is the lowest percentage of my portfolio and try to keep everything around 10%. Please what could be my safest buys with $400k to outperform the market in 2024?

[sommersalt]

I’m a god of devaluation, I buy a stock and it goes down! Why I can't make earnings is beyond me. It can be annoying how volatile the market is. How can I ride this fresh wave of all-time highs without getting burned again with 450k set aside to get fully invested this year?

[Riggsnic_co]

This is quite educational. It's crucial for newcomers to keep in mind that the financial markets are highly irrational in the short run. You should constantly be ready for the unexpected. That is how chance operates. Because of the inherent risks in the market, I always favor long-term investments.

[mendeleyborisov]

I remember having a consultation with a financial analyst last August, and it was incredibly insightful. Can’t stress enough how helpful experts in this field are!

[jevans]

Thank you I’m new to investing and I’ve been trying to understand P/E ratio. After reading many lengthy articles, without having a clear idea, I happen across your video, and I have a better grasp of the subject. You earned a new subscriber, and I look forward to studying with you

[stockplan]

this is the best explanation of PE on the web, still since my last post

[neilgary]

Good job man! You really explained it clearly and in a way that most people would understand.

[AlessandroBottoni]

Very clear and entertaining explanation of a largely misunderstood concept. Congratulations!

[stockplan]

This is an excellent, excellent explanation. Give this guy credit.

[Fox]

lovely video I had trouble with the topic now I have more

[ErinandEmmaFinance]

great to see you comparing PE and other companies

[HaitianTrini]

I have been recentlt looking for some cartoonish videos to sit down and get my kids more focused on learning about the market. I will be using this channel for now. Great video

[alexandruantonica]

Really enjoyed it, was very helpful compared to other videos. 👌

[brunoproence]

What a great channel! Keep up the good work!

[FranciscoGalicia]

awesome video. thanks, liked and subscribed.

[DandyFinance]

Nicely put together! Really a fan of comparing PE and other ratios of companies from similar industries! Thanks for sharing!

[sooryashiva]

An underrated financial channel

hope you gain lakhs of subscribers ❤