What is PE Ratio?

P/E Ratio

It denotes how much multiple you pay for 1 year income of share of the company, PE can be higher when company shows increasing profit.

Higher the share price means higher is the P/E

It shows 

1-The stock is undervalued or Overvalued.

2-The calculation of future price target.

P/E = Share Price/EPS

EPS means How much you earn for per share per year.

EPS=Net Profit/No. Of Shares

Important- If you want to understand PE Ratio in depth and become a master of it, you must read the book of Cam Marcus, The author of the book called 

Making Money by Understanding PE Ratios, Buy Now

Tip- Compare current P/E with historical P/E then compare with historical P/E with PROFIT GROWTH history.

If Profit growth goes like 100%, 150%, or 180% in three or five years then market give it's high P/E ratio as market assume that in future it's shows more profit growth.

If Profit goes slowly year by year then it's P/E automatically low or fair position.

You can go with or invest in high P/E ratio Company as current it seems Costly but As profit growth goes up you find the company is become fair valuable for you.