Price divided by earnings
P/E stands for price-to-earnings. The usual calculation divides the current share price by earnings per share. A £100 price divided by £5 of annual earnings gives a P/E of 20. You can read that as the market price being twenty times the latest annual earnings per share.
The ratio puts companies with different share prices and share counts onto a more comparable scale. It is popular because the ingredients are familiar. It is also easy to misuse because those ingredients can change quickly or be measured in different ways.
Why one company may have a higher P/E
A higher P/E can reflect expectations of faster future growth, steadier earnings or lower perceived risk. It can also reflect over-optimism. A lower P/E may signal a bargain, or it may mean investors expect profits to fall. The ratio shows the price being paid relative to earnings; it does not explain why the market chose that price.
Comparisons are usually more useful between companies with similar businesses and accounting. A bank, a young software company and a cyclical manufacturer can have very different normal profit patterns.
Trailing, forward and temporarily meaningless
A trailing P/E uses earnings already reported. A forward P/E uses forecasts, which may be wrong. Sites can therefore show different ratios for the same company without either calculation being a typo. Always check which earnings period and adjustments are being used.
If earnings are tiny, the ratio can become extremely large. If earnings are negative, the ordinary P/E is not meaningful at all. That does not make the company worthless. It means this particular tool cannot do useful work with a negative denominator.