Warren Buffett uses a single number to decide if a stock is worth buying

It's the P/E ratio — Price divided by Earnings per share. If a stock costs $100 and earns $5 per share, the P/E is 20. That means investors are paying $20 for every $1 of earnings.

A high P/E (30+) usually means investors expect strong future growth — they're paying a premium today for tomorrow's earnings. A low P/E (under 15) might mean the company is undervalued, or that the market expects trouble ahead.

The S&P 500's historical average P/E is about 15-17. Tech companies often trade at 30-50x because of growth expectations. But here's the catch: P/E is only useful when comparing companies in the same industry. A tech company's P/E of 40 means something very different from a utility company's P/E of 40.