Ask an analyst whether a stock is cheap or expensive and the first number they reach for is almost always the same: the price-to-earnings ratio, or P/E. It is the single most used valuation tool in stock markets, it takes ten seconds to calculate, and it is misunderstood almost as often as it is used. The formula is simple: P/E = share price ÷ earnings per share (EPS). If a stock trades...
