Ask a Fool: What is the P/E Ratio?

In the spirit of better investing, and in celebration of the first annual Worldwide Invest Better Day (WWIBD) coming up on September 25, Motley Fool analysts will be answering user- and reader-submitted questions leading up to the big event. "Ask a Fool" anything, and we'll do our best to help you invest better.

The P/E ratio, or price-to-earnings ratio, is one of the most watched and also most misunderstood metrics out there for investors. In the following video, Fool.com analyst Austin Smith explains the ins and outs of  calculating and interpreting a P/E ratio. First, our Foolish analyst considers that the median stock in the S&P 500 (SNPINDEX: ^GSPC  ) has historically had a P/E ratio of about 15. He then zeros in on a few companies' current ratios for closer examination. Watch the video below to learn more.

 

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Austin Smith has no positions in the stocks mentioned above. The Motley Fool owns shares of LinkedIn and Zillow. Motley Fool newsletter services recommend LinkedIn and Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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