What is calculated by dividing the price of one share of stock by the earnings per share over the last 12 months?

The Price to Earnings Ratio (P/E Ratio) is a key financial metric used by investors to assess the relative value of a company's shares. It is calculated by taking the price of a single share of stock and dividing it by the earnings per share (EPS) over the last 12 months. This ratio provides insight into how much investors are willing to pay for each dollar of earnings, which can help in comparing the valuation of different companies or in evaluating whether a stock is overvalued or undervalued relative to its earnings.

A high P/E ratio may indicate that investors expect future growth in earnings, suggesting higher demand for the stock, while a low P/E ratio may suggest that the stock is undervalued or that the company is experiencing difficulties. This financial indicator is particularly valuable in identifying investment opportunities or in conducting a comparative analysis of stocks within the same industry.

Understanding the P/E ratio is fundamental for making informed investment choices, as it provides a clearer picture of a company's financial health and market expectations.