Let's talk P/E ratio, shall we?
What does P/E stand for?
It's price-to-earnings (ratio). Think of it like this--it's basically a way for investors to gauge if a company's earnings actually stack up to its share price.
How do you calculate P/E ratio?
To find a stocks P/E ratio- it's easy.
All you have to do is divide the stock's market value per share (or stock price) by the company's earnings per share. TheStreet's Dave Butler digs into trailing and forward P/E ratios and more. Read What Is a P/E Ratio and Why Is it Important?
How does a company establish its P/E ratio and typical yield?
According to Real Money's Mark Dodosh, "that's a function of the market. If you have years of good data it's easy to look back and see where any particular stock has traded in the past." He says P/E ratios reflect a stock's popularity as well as its ever-changing fundamentals.
Read his take here: Barron's Is Dead Wrong About Death of Reversion to the Mean