What Is the Price-to-Earnings (P/E) Ratio?
Key Takeaways
The P/E ratio shows how much investors are willing to pay for each dollar a company earns, making it a quick way to evaluate whether an asset may be overvalued or undervalued.
There are different types of P/E ratios—like trailing, forward, absolute, and relative—which offer various perspectives, but all require context such as industry norms and company growth potential.
The P/E ratio doesn’t work well for cryptocurrencies because most don’t generate earnings and reports in the same way companies do. However, there are similar valuation methods being tested in some areas of decentralized finance (DeFi).
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