One of the most popular methods used by investors and analysts to assess a stock's value is the price-to-earnings ratio (P/E). One way to tell if a stock is overvalued or undervalued is to look at its P/E ratio. The P/E of a firm can also be compared to other stocks in the same sector or to the S&P 500 Index.
P/E Ratio = Price per Share / Earnings per Share
By dividing net income by the total number of outstanding shares of a corporation, you may get its earnings per share (EPS). The price-to-earnings (P/E) ratio is another useful valuation measure and is calculated by dividing net income by the price per share.
Earnings per share is referred to as EPS, and price to earnings is referred to as P/E. Income per share: This metric is determined by dividing the corporation's net income by the total number of issued and outstanding shares.
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