How many dollars will you pay for a dollar of earnings from a company?
That is what a price/earning (P/E) ratio is.
You’ll see ups and downs in this ratio depending as investor confidence waxes and wanes.
When greed holds sway, very high P/Es are likely.
For reference, as of today, Tesla’s PE Ratio is 1,079.14 as of March 16, 2021.
When hope prevails, P/Es are moderate.
When fear is in the saddle, P/Es are typically very low
P/E ratios are a great tool to understand the frequent insanity of Mr. Market.
Like paying $1,078.14 dollars for $1, a single dollar, of earnings.
Photo by Alex Geerts on Unsplash.