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What does the price earnings ratio mean for a stock?

Lexington financial planner Raymond James says the price to earnings ratio is simply the stock price-divided by the earnings per share of the company over a twelve month period.

The price earnings ratio shows what investors are willing to pay for each dollar a company earns. It is the basic valuation for a company stock price.

Companies that have a higher price to earnings ratio typically are expected to grow their earnings faster.


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