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Valuation & fundamentals

P/E Ratio

Price-to-earnings ratio: share price divided by earnings per share, a shorthand for how expensive a stock is relative to its profit.

FormulaShare price ÷ Earnings per share

The price-to-earnings ratio (P/E) divides a company's share price by its earnings per share (EPS). A stock trading at $60 with $3 of annual EPS has a P/E of 20 — the market is paying 20 times the company's current annual earnings for a share.

P/E is a rough, widely used shorthand for how expensive a stock is relative to how much money the underlying business actually makes. A high P/E can mean the market expects fast future growth, or it can mean the stock is simply overpriced — the ratio alone doesn't tell you which. A low P/E can mean a genuine bargain or a company the market has real doubts about. It's a starting point for comparison, not a verdict on its own, and it's most useful comparing similar companies in the same industry rather than across unrelated sectors.

"TTM" next to a P/E figure means trailing twelve months — the ratio is calculated from the last four reported quarters of actual earnings, not a forecast.

Related terms