The P/E ratio is today the most commonly used valuation metric in the world.
Prof. Janette Rutterford, Open University, 2004
The P/E has a long history, but it has not always been the most popular way to value shares. Since the invention of stock markets up until less than 100 years ago, the dividend yield (DY) was the main figure every investor was interested in. The asset backing behind a company was also important. The P/E is, compared to these two, a relatively recent invention. Even the phrase ‘price–earnings ratio’ only became popular in the 1920s in the US. In the UK dividends were still what mattered up until the mid-1960s.
For centuries, at ...