I'm just starting out in investing so I apologize if this comes across as annoyingly simple question. I've just read about PE Ratio and I came across this video from investopedia P/E Ratio Video which I thought was simplified and was therefore helpful. However, there's this part of the example that I don't get:
If investment is on Al's, he pays $9 per $1 of earning... If investment is on Bob's, he pays only $3 per $1 of earning.
The idea I don't get is the paying an amount for $1 of earning. I'm not sure why an investor would pay an amount for a dollar earned by the company.
Could anyone be kind to help me clarify this? Thank you!