The price-to-earnings ratio tells you what the price of a company's stock is compared to the current earnings on that share. As companies within a particular industry tend to work in similar environments, it makes sense to compare the P/E ratios of companies that can be considered peers. It is also useful to compare individual companies’ PE ratio against the industry average.
The industry average PE ratio generally hints at the larger trends in a given industry. There are many websites that provide accurate information about industry trends. Among others, the NYU Stern School of Business tracks P/E ratios by sector in the US.
Investing based on the P/E ratio can be complicated and is explained further in our article on what is a good P/E ratio.
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