Definition
Price-to-Earnings Ratio (P/E)
A stock’s price divided by its earnings per share.
The Price-to-Earnings ratio, or P/E, compares a company’s share price to its earnings per share — in effect, how many dollars investors are paying for each dollar of annual profit. A high P/E can mean investors expect strong growth, while a low P/E can signal a cheaper valuation or a business the market is worried about. P/E is most useful when compared against a company’s own history and its industry peers, since a “normal” level varies widely by sector.
Related terms
- Earnings Per Share (EPS)A company’s profit divided by its number of shares.
- PEG RatioA P/E ratio adjusted for how fast a company is growing.
- Price-to-Book Ratio (P/B)A stock’s price compared to its net assets on the books.
- Intrinsic ValueAn estimate of what a business is actually worth, apart from its share price.
See it on a real stock
Market Lens puts Price-to-Earnings Ratio (P/E) to work automatically in every report — free, no sign-up.