Video narration
How do you know whether a stock is cheap or expensive when all you see is its price? Think about buying a small business. You wouldn't judge it from the asking price alone; you'd compare that price with yearly profit. A stock works the same way: its price matters alongside what each share earns. That's the turn. Price alone tells you almost nothing about value. The P/E ratio-price-to-earnings ratio-makes the comparison: divide share price by earnings per share. If a share costs $100 and earns $5, P/E is 20. You're paying $20 for each $1 the company earns. But 20 isn't automatically good, and lower isn't automatically better. Growth and business quality matter. Compare against similar companies. If earnings are zero or negative, a conventional P/E may be unavailable or misleading. So, is the stock cheap? Not from price alone. Use P/E, then compare it with similar businesses.