What does the P/E ratio mean in trading?

The abbreviation "P/E" stands for "price-to-earnings." This term is expressed as a ratio and takes into consideration a stock's past or future earnings to show what the market is willing to pay for it today.

For example, if you come across a low P/E indicator, it may show that the current stock price is low relative to earnings. However, a high price-to-earnings ratio could indicate that a stock's price is possibly overvalued (as it is high relative to earnings).