P/E Ratio (Price-to-Earnings)
The headline valuation metric — how many times earnings per share (EPS) the stock trades at.
In plain terms
Think of buying a shop. If it earns $10,000 a year and you pay $100,000 for it, you are paying "10 years of earnings." That is a P/E of 10.
Stocks work the same way. A P/E of 15 means the share price is set at 15 years of the company's per-share earnings (EPS), assuming today's earnings stay the same. So P/E is the most basic yardstick for how a price compares with earnings.
Here EPS is measured on a TTM (Trailing Twelve Months) basis — the last four completed quarters added together, which smooths out lumpy quarterly results into a one-year figure.
What it tells you
P/E alone tells you "how much the market is willing to pay for this company's earnings." Of two companies each earning the same amount, if one trades at 40x and the other at 10x, the market expects the first one's future earnings to grow much faster.
So P/E is not just about a high or low multiple — it is also a way to read, in reverse, the growth expectations already baked into the price.
Formula
P/E = current share price ÷ earnings per share (EPS, TTM)
What high or low means
A low P/E can mean the stock is low relative to earnings, but slow-growing or risky companies also show low PERs. A high P/E may signal big growth expectations — or simply a high multiple.
Normal P/E levels vary widely by industry (high for fast-growing software, low for mature banks and telecoms). So a stock's relative position within the same industry matters more than the absolute number.
A low P/E does not always mean the price sits below value. When a business is in decline and the market has already priced in falling future earnings, the P/E also prints low (a so-called "value trap"). So when P/E is low, look at ROIC (return on invested capital) or the revenue trend too, to tell what is behind the low multiple.
In highly cyclical industries (semiconductors, steel), P/E can move in reverse. It is lowest when earnings peak (the market sees a coming downturn and the price stalls) and spikes when earnings bottom out right after a loss. For these industries, reading P/E on its own can lead you exactly backwards.
The denominator, net income, is swayed by one-off items like asset-sale gains or temporary tax effects. With a loss (EPS ≤ 0) the calculation is meaningless. And forward P/E (using estimated future earnings) differs from trailing P/E (using past results) — this dictionary uses trailing TTM.
Around 2000, during the "dot-com bubble," internet companies with little or no profit — many of them loss-making — traded at PERs in the hundreds. The optimism was that "the internet is different; profits will come later."
When the bubble burst, the Nasdaq crashed roughly 78% from its 2000 peak to 2002, and took a full 15 years to reclaim its old high. It was a vivid demonstration that a price unsupported by earnings eventually collapses against the yardstick of P/E.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see P/E and other financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.