What is Price to Earnings (PE)?

What is PE?

Price to earnings, also known as PE, is one of the most common ways to determine whether a stock may be overvalued or undervalued.  

The simple idea is that it compares the price to earnings by putting the EPS over the year over the outstanding shares of the stock. 

This simple phenomenon allows us to look at a stock’s PE and determine whether the yearly earnings compare well with the current trading value.  For example at the time of writing, TSLA has a PE of about 662, well above a reasonable 10-20 PE or above the current S&P 500 PE of ~37.

Check out the video above if you’re interested in learning more about PE!