What it means
Price-to-earnings ratio is a stock's price divided by its earnings per share over a given period. Trailing P/E uses the last 12 months of earnings; forward P/E uses next-12-month estimates. Higher means more expensive per dollar of earnings.
Why it matters
P/E is the lazy person's valuation framework - but lazy doesn't mean useless. It anchors discussions about whether a market or stock is 'cheap' or 'expensive' relative to its own history and to peers.
How to use it
Compare P/E to (a) the same stock's 5- and 10-year history, (b) industry peers, (c) the broader index. A 30× P/E means little in isolation - context determines whether it's cheap (high-growth) or expensive (stagnant business).
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