The price-to-earnings (P/E) ratio is a commonly used metric that provides a snapshot of a company’s valuation. The average P/E ratio of stocks in the S&P 500 is around 27X. Any stock with a ratio below that number may offer value relative to its earnings.
However, to be considered a “low P/E stock,” a P/E ratio is usually between 5X and 12X. Not surprisingly, many of the stocks that meet that low P/E threshold tend to be smaller companies that fly under the radar of institutional investors.
