P/E is one of the indicators that investors employ in their stock analysis (It is also called stock coefficient). It is calculated by dividing the stock price by EPS (Earning Per Share). P/E shows the profitability of a company and its future outlook. Therefore, it can be used as one of the tools to value a stock's price. P/E multiplied by EPS presents the value of the stock. This calculated value can be compared with the market share current price. If the market share value is less than the calculated value, it signals that the stock might be a good buy opportunity. EPS is a significant factor for P/E calculations. Therefore, accurate methods should be used for its calculation.
P/E of a company is a factor of the company's profitability and price. Therefore, its value can vary over time. Accurate calculation and prediction of the P/E ratio are crucial for investors. Many factors, such as the company's growth rate, bank interest rates, inflation, political atmosphere, business partnerships, etc. can be used for the P/E prediction in the future. A high P/E ratio is an indicator that the market expects higher profitability for that company in the future. On the other hand, a low P/E ratio signals that the market expects lower profit for that company in the future. However, market expectations can turn out wrong on some occasions. Therefore, it can not solely be used as a definitive factor to analyze a stock. As the last point, the P/E ratio is practically used for profitable companies.