Price to Earnings Ratio meaning

[RChristenk]

From Wikipedia:

"As an example, if share A is trading at $24 and the earnings per share for the most recent 12-month period is $3, then share A has a P/E ratio of $24/($3/year) = 8 years. Put another way, the purchaser of the share is investing $8 for every dollar of annual earnings; or, if earnings stayed constant it would take 8 years to recoup the share price."

So just strictly based on this definition, a higher P/E would be bad because it would take more years to recoup the share price (or more money for every dollar of annual earnings). Whereas a lower P/E would be good because it takes less time to recoup the share price (or less money for every dollar of annual earnings).

Obviously in reality it is the opposite. So I'm really not understanding what P/E means. Any help would be appreciated thanks.

 

[Bystander]

https://www.forbes.com/advisor/investing/what-is-pe-price-earnings-ratio/

 

[snorkack]

From Wikipedia:

"As an example, if share A is trading at $24 and the earnings per share for the most recent 12-month period is $3, then share A has a P/E ratio of $24/($3/year) = 8 years. Put another way, the purchaser of the share is investing $8 for every dollar of annual earnings; or, if earnings stayed constant it would take 8 years to recoup the share price."

So just strictly based on this definition, a higher P/E would be bad because it would take more years to recoup the share price (or more money for every dollar of annual earnings). Whereas a lower P/E would be good because it takes less time to recoup the share price (or less money for every dollar of annual earnings).

Obviously in reality it is the opposite. So I'm really not understanding what P/E means. Any help would be appreciated thanks.

It is not so totally obvious. The actual question is - what are the other buyers/the share market mistaken about? What are you guessing right that the market is guessing wrong?
If P/E is high but positive, or it is negative, it means that E is small, or actually negative, but P is still high. The share is bringing in little money for now but people are willing to pay high P for it because they hope that E will grow a lot in future (or, less commonly, that E will stay steady and safe for a long time).
If P/E is low, it means that the share is bringing in money now but the share traders are afraid that it will stop bringing in money soon.