Learn / Fundamentals / Valuation / P/E Ratio
P/E = Share Price ÷ Earnings Per Share
This number tells you how many dollars you pay for each dollar of company profit. A P/E of 20 means you pay $20 for every $1 the company earned.
01 Feel it first
Change the share price and the profit per share (EPS = profit ÷ number of shares). Watch the year blocks stack — each block is one year of today's profit it would take to match what you paid.
At $150 a share earning $6.00, you pay 25.0× earnings. It would take about 25 yearsof today's earnings to earn back the price. A middle-of-the-road multiple, typical of a steady, established business.
02 Break the intuition
A high share price does not mean an expensive stock. Guess which deal is better, then peel back the card to see the earnings.
03 Predict it
EPS is locked. Drag the price to land on a target P/E, then lock your guess and see how close you got.
EPS is fixed at $4.00. Where must the price sit for a 15× P/E?
Drag the price, then lock. We will reveal the price that hits 15× and score how close you got.
04 Find the fair zone
Scrub the P/E needle across cheap, fair, rich, and danger zones. The same multiple can look cheap for a bank and normal for software.
At 22.0× you are in the Fair band. 30× can look expensive for a bank and normal for software. Always compare to peers.
05 Two flavors
Same math, different profit number. One uses last year's real results. The other uses a guess about next year.
06 The catch
30× can look expensive for a bank and normal for a fast-growing software company. Compare within the same industry, and against the company's own past.
07 Check yourself
08 Where it breaks
If profit is negative, P/E does not make sense. The math gives a negative or blank number. Many young growth companies sit here.
Miners and carmakers can look "cheap" when profits are temporarily huge at the top of a cycle, and "expensive" when profits crash. P/E can flip the truth.
Selling a building or writing down an asset can warp one year of EPS (earnings per share). The ratio then drifts away from normal earning power.
P/E alone does not care about growth. A 40× stock growing 30% a year can be a better deal than a 12× stock that is stuck. PEG adjusts for growth.
See any of 70,000 stocks with live trailing and forward P/E, a 10-year history chart, and its sector average, side by side. Then screen the whole market by the ratio in one click.
At $150 a share earning $6.00, you pay 25.0× earnings. It would take about 25 yearsof today's earnings to earn back the price. A rich multiple. The market is pricing in real growth ahead. It has to show up.