No; for $62 of shares, you buy $62 of shares. The Price-to-Earnings ratio is the ratio of the total outstanding share value to the company's income in the prev

No; for $62 of shares, you buy $62 of shares. The Price-to-Earnings ratio is the ratio of the total outstanding share value to the company's income in the previous year. Facebook's income in 2011 was $1B. At the IPO share price of $38, the value of the total outstanding shares was around $100B, giving them a P/E ratio of 100 ($100B / $1B = 100). Now that the share price has fallen by half, the P/E ratio is closer to 50. The P/E ratio is used to give an indication of how highly a company's stock is valued in relation to the profit they make. Companies with a high P/E ratio are typically expected by shareholders to report higher profits in the future. Those with a low ratio are expected to remain flat or contract. For high-growth companies, like triple-digit growth, a P/E ratio between 50-100 is not unheard of, but is relatively high, and an indication of an exceptionally high degree of confidence in the company. A ratio in the 20-40 range is more common for growing companies. 10 and under typically indicates a relative lack of faith in growth prospects by investors. There are many more factors to consider than relation to last year's profits when determining the value of a stock, but this is a very commonly used metric.