Is a companies share price vs its earnings, indicating how long it takes to pay back the initial investment.
To determine if a company is cheap or expensive look at its EPS.
e.g. Say Tesco’s share price is 4.20 & EPS is 30 cent
Means EPS is 14 times (4.20/.30)
The lower the P/E ratio the better the chances of making a return as a rule.
So Tesco = 14
Sainsbury’s = 13
Sector = 16
FTSE 100 = 17