Use the price/earnings ratio (P/E) as the best single benchmark for deciding whether shares are expensive or cheap. The P/E of a share is its price divided by its after-tax earnings. For example, if a share is 250 cents and its earnings per share are 25 cents, the share is on a P/E of 10. If the share price goes up, in a period of optimism, to 500 cents, but the earnings per share are still 25 cents, the P/E is now 20.
