P/E Ratio (Price-to-Earnings)

A stock priced at ₹500 with ₹25 earnings per share has a P/E of 20 - meaning investors are currently paying ₹20 for every ₹1 of the company's annual profit. A high P/E can mean the market expects strong future growth (common for younger, fast-growing companies), or that the stock is simply overpriced relative to its actual earnings - the ratio alone doesn't tell you which. A low P/E can mean a genuine bargain, or a business the market has real, valid concerns about. P/E is only meaningfully comparable within the same industry - a software company and a bank naturally trade at very different typical P/E ranges, given how differently their businesses are structured and valued.