The price-to-earnings ratio, or PE ratio, is one of the simplest but most popular financial ratios for estimating the value of a stock. Even though the PE ratio is simple, it’s an amazingly useful tool.

In fact, a study by Merrill Lynch found that 33% of professional investment managers consider the PE ratio before investing in a company. And one of the most famous value investors of recent times, Peter Lynch, was known to make good use of the PE ratio in his analysis. Read more »