What is Price-to-Earnings (P/E) Ratio?
A company’s share price divided by its earnings per share — how much you pay for each dollar of profit.
Educational — not investment advice
The P/E ratio compares price to profit. A P/E of 20 means investors are paying $20 for every $1 of annual earnings. It is the most quoted valuation shorthand there is.
Trailing P/E uses the last year’s reported earnings; forward P/E uses estimated future earnings. Comparing a company’s P/E to its own history and to peers is more informative than the raw number.
The trap most people miss
A low P/E is not automatically "cheap" and a high one is not automatically "expensive." A low P/E often reflects real trouble the market is pricing in; a high P/E can be justified by fast, durable growth. P/E ignores debt and cash entirely.
Frequently asked about Price-to-Earnings (P/E) Ratio
What is a good P/E ratio?
There is no universal number — it depends on the company’s growth, sector, and risk. Compare against its own history and close peers.
Trailing vs forward P/E?
Trailing uses actual past earnings; forward uses forecasts. Forward P/E is only as reliable as the estimates behind it.
Related terms
Guides that use Price-to-Earnings (P/E) Ratio
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This definition is for educational purposes only and is not investment, tax, or financial advice. Concepts are explained in general terms; how they apply to your situation can differ. Always do your own research.