There are many different ways that investors use to try and determine a stock’s share price and what it is really worth. Typically, investors fall into one of two categories. They are either financial analysis investors or technical analysis investors.
Investors who use financial analysis use many means to price a stock’s shares. Two of the most popular methods are the price to earnings ratio simply called the PE ratio and growth rate.
What Is A PE Ratio? And, How Do You Calculate It?
A PE ratio is the value of the price of a share of stock divided by the company’s earnings per share. For example, if you look at one of my favorite stocks that I personally own, Dr. Pepper Snapple Group (Ticker Symbol: DPS), its current PE ratio is 15.67 as of September 25th, 2011.