What Is a P/E Ratio?
What is the P/E ratio?
The P/E ratio compares share price to earnings per share. Formula: P/E = Share Price ÷ EPS. A stock at $100 with EPS of $5 has a P/E of 20.
How do you calculate a P/E ratio?
Divide current share price by trailing 12-month earnings per share. Both numbers are on every stock quote page.
What's a 'good' P/E ratio?
Below 15 is typical for value or slow-growth. 15–25 is the broad-market average. 25–50 is common for growth stocks. Above 50 means high expectations.
What are the limits of the P/E ratio?
P/E ignores debt, cash flow, and growth. Use it alongside other ratios.
Frequently asked questions
Is a low P/E always better?
No. A low P/E can mean the stock is undervalued, or that earnings are expected to fall.
What is a 'good' P/E ratio?
The S&P 500 averages 15–22. Tech often trades above 30; banks often below 15.
Trailing vs forward P/E?
Trailing uses last 12 months of actual earnings. Forward uses analyst estimates for the next 12 months.
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