Lesson 6 of 8
P/E Ratio & Earnings
Is this stock cheap or expensive?
P/E ratio is how many years of current earnings you're paying for. A P/E of 20 means you're paying 20x this year's profits. Low P/E can mean cheap OR declining. High P/E can mean expensive OR fast-growing.
P/E across real companies
NVIDIA
Priced for continued AI-driven growth. Huge downside if growth slows.
Apple
High for mature tech, but ecosystem and buybacks justify most of it.
Meta
Growth at a fair price. Ad business is a cash machine.
JPMorgan
Banks normally trade at low P/Es. Cheap relative to earnings power.
Ford
Low multiple, but auto is a shrinking, low-margin business. Cheap for a reason.
* Cheap is not always good. Watch out for "value traps" where the P/E is low because earnings are falling.
Low P/E (under 15)
Banks, utilities, oil companies
Slower growth, often pay dividends
"Value" stocks
High P/E (over 30)
Tech, biotech, high-growth
Market expects big future earnings
"Growth" stocks
earnings season
Companies report earnings 4x/year. Stock prices jump 5-15% on surprise beats or misses. This is the most volatile time for individual stocks.
Check yourself
A stock with P/E of 60 means...