What is the P/E Ratio?
The Price-to-Earnings (P/E) ratio is one of the most widely used stock valuation metrics. It compares a company's stock price to its earnings per share, helping investors understand how much they're paying for each dollar of earnings.
The P/E Ratio Formula
P/E Ratio = Stock Price / Earnings Per Share (EPS)
Alternatively: P/E = Market Capitalization / Net Income
Types of P/E Ratios
Trailing P/E (TTM)
Uses earnings from the past 12 months. This is the most common P/E calculation because it's based on actual reported earnings.
Forward P/E
Uses projected earnings for the next 12 months. Useful for evaluating growth expectations, but depends on analyst estimates.
Shiller P/E (CAPE)
Uses average inflation-adjusted earnings over 10 years. Smooths out business cycle fluctuations for longer-term valuation.
How to Use This Calculator
- Enter the current stock price
- Choose how to input earnings (EPS directly or total earnings + shares)
- Enter the earnings data
- Optionally enter industry average P/E for comparison
- Click "Calculate" to see results
Interpreting P/E Ratios
- High P/E (>25): May indicate growth expectations or overvaluation
- Average P/E (15-25): Typical range for established companies
- Low P/E (<15): May indicate value opportunity or concerns about the company
Important Considerations
- Compare P/E within the same industry
- Consider earnings growth rate (PEG ratio)
- Negative earnings result in no meaningful P/E
- One-time events can distort earnings
