PE and PB are financial ratios used to analyze stocks. Based on the provided reference, they are defined as follows:
- PE: Refers to the Price-to-Earnings (P/E) ratio.
- PB: Refers to the Price-to-Book (P/B) ratio.
Here's a breakdown of each:
Price-to-Earnings (P/E) Ratio
The P/E ratio helps assess a stock from its earnings perspective. It's calculated by dividing the current market price per share by the company's earnings per share (EPS).
- Formula: P/E Ratio = Market Price per Share / Earnings per Share (EPS)
- What it indicates: It shows how much investors are willing to pay for each dollar of a company's earnings.
- Interpretation: A high P/E ratio might suggest that a stock is overvalued, or that investors expect high growth in the future. A low P/E ratio might suggest that a stock is undervalued, or that the company is not expected to grow much.
Price-to-Book (P/B) Ratio
The P/B ratio measures a company's stock price against its book value. Book value is the total assets minus liabilities.
- Formula: P/B Ratio = Market Price per Share / Book Value per Share
- What it indicates: It shows how much investors are willing to pay for each dollar of a company's net assets.
- Interpretation: A low P/B ratio might suggest that a stock is undervalued. A high P/B ratio might suggest that a stock is overvalued.
