The formula
P/E = Share Price ÷ Earnings Per Share. A P/E of 25 means investors pay ₹25 for every ₹1 of annual profit.
How to read it
A high P/E means the market expects strong future growth; a low P/E can mean a stock is cheap or that the market expects trouble. P/E is only meaningful judged against the company's own growth and its sector peers — a 40 P/E can be reasonable for a fast grower and expensive for a mature one.
P/E ignores growth. To adjust for it, look at the PEG ratio, which divides P/E by the earnings growth rate.