The price-to-earnings ratio (p/e) is a financial metric used to evaluate a company's valuation by comparing its current share price to its earnings per share (EPS). It serves as a crucial tool in investment analysis, helping investors assess whether a stock is overvalued or undervalued relative to its earnings potential. A high p/e ratio may indicate that a stock is priced high relative to its earnings, suggesting growth expectations, while a low p/e might imply undervaluation or weak future growth prospects.
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