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A valuation ratio comparing a company's stock price to its earnings per share.
The P/E ratio indicates how much investors are willing to pay per dollar of earnings. A high P/E (25+) may suggest growth expectations or overvaluation, while a low P/E (under 15) may indicate undervaluation or declining prospects. The trailing P/E uses past 12-month earnings, while the forward P/E uses estimated future earnings. The S&P 500 average P/E has historically been around 15-17x. The cyclically adjusted P/E (CAPE or Shiller P/E) uses 10-year average inflation-adjusted earnings and is used to assess long-term market valuation.