PE Ratio is a Price-to-Earnings Ratio and measures the current price of the stock to its EPS:
And here probably you need to know what is Earnings-Per-Share (EPS). EPS is a portion of profit allocated to each share.
Let’s take an example for better understanding – Apple Inc. (AAPL). If we have EPS for Apple Inc $9.22 and a price of the stock is $107.31, then P/E Ratio will be $107.31 / $9.22 = 11.6
I recommend to compare EPS and P/E ratio of the particular stock with other stocks within industry and/or segment. For example, Apple Inc has quite small P/E Ration in compared to other companies, and it’s nice both for Apple and investors.
P.S. Take a look at Book Value and P/B Ratio, it’s another useful metrics for understanding company’s wealth.