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Why a $10 stock isn't cheaper than a $500 one

A company can split one share into ten. Nothing about the business changed, but the price per share is now a tenth of what it was.

That's why investors compare price to something real: profit, sales, or assets. The price-to-earnings ratio is the most common of these.

Reading it: a P/E of 15 means you pay $15 for every $1 of yearly profit. Lower can mean a bargain, or it can mean people expect profits to fall.

Remember

Price per share tells you nothing on its own. Ratios do.

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