A stock's price divided by its earnings per share — the most common valuation metric.
In depth
P/E tells you how many dollars investors are paying for each dollar of company earnings. A P/E of 20 means the market values the stock at 20 years of current earnings. "Trailing P/E" uses last 12 months of earnings; "forward P/E" uses next 12 months of estimates. Compare a P/E to: the company's history, peers in the same industry, and the broader market average. Low P/E may indicate undervaluation OR poor growth prospects; high P/E may signal premium quality OR overvaluation.
Example
If a stock trades at $100 and earned $5 per share last year, its trailing P/E is 20.
Frequently asked about P/E Ratio (Price-to-Earnings)
What is P/E Ratio (Price-to-Earnings)?
A stock's price divided by its earnings per share — the most common valuation metric. P/E tells you how many dollars investors are paying for each dollar of company earnings. A P/E of 20 means the market values the stock at 20 years of current earnings. "Trailing P/E" uses last 12 months of earnings; "forward P/E" uses next 12 months of estimates. Compare a P/E to: the company's history, peers in the same industry, and the broader market average. Low P/E may indicate undervaluation OR poor growth prospects; high P/E may signal premium quality OR overvaluation.
Why does P/E Ratio (Price-to-Earnings) matter for investors?
In valuation, P/E Ratio (Price-to-Earnings) is one of the building blocks investors use to compare opportunities and assess risk. Understanding it helps you read research notes, earnings reports, and market commentary without getting lost in jargon.
Can you give an example of P/E Ratio (Price-to-Earnings)?
If a stock trades at $100 and earned $5 per share last year, its trailing P/E is 20.
