The P/E Ratio Explained
The P/E ratio is a key metric that helps investors gauge a company's value by comparing its share price to its earnings per share (EPS).
Here’s a breakdown of its importance:
- Definition: The P/E ratio indicates what investors are willing to pay for $1 of earnings.
- Normalization: It allows for comparisons across different companies and sectors, providing an equal playing field.
High vs. Low P/E:
- High P/E: Often seen in tech stocks due to their growth potential.
- Low P/E: Common in more stable sectors like consumer staples.
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It was a big week for tech stocks with four of the MAGS 7 members reporting quarterly results. These are some of the most powerful and expensive companies in the world. As part of our tech investing playbook, we want to talk about how investors can understand whether a tech stock is worth the price.
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