What is the significance of the P/E ratio in stock analysis?
A. Profit and Earnings ratio
B. Price and Earnings ratio
C. Portfolio and Equity ratio
D. Percentage and Earnings ratio
B. Price and Earnings ratio
The P/E ratio is a commonly used valuation metric in stock analysis that helps investors assess the attractiveness of a stock by comparing its current price to its earnings per share. It indicates how much investors are willing to pay for each dollar of earnings generated by the company. A high P/E ratio may suggest that a stock is overvalued, while a low P/E ratio may indicate that a stock is undervalued. Investors use the P/E ratio in conjunction with other financial metrics to make informed investment decisions.