P/E Ratio
Share price divided by earnings per share. The P/E tells you how many dollars investors pay for each dollar of earnings.
P/E = Share Price ÷ Earnings Per Share
The price-to-earnings ratio is the most-used equity valuation multiple. A P/E of 20 means investors are paying $20 for every $1 of annual earnings — effectively, a 20-year payback if earnings stay flat.
Trailing P/E uses the last 12 months of reported EPS. Forward P/E uses the next 12 months of consensus estimates and is more useful for growth stocks. A high P/E signals the market expects strong earnings growth; a low P/E can mean value or deteriorating fundamentals.
P/E is meaningless for companies with negative earnings, and comparisons only make sense within the same sector — tech stocks structurally command higher P/Es than banks or utilities.
On the desk
Stock trades at $50. Trailing EPS is $2.50. Trailing P/E = 50 ÷ 2.50 = 20×. The sector average is 15×, suggesting the stock trades at a premium — justified only if earnings growth exceeds peers.