P/E Ratio Calculator
Calculate price-to-earnings ratio for stock valuation
P/E Ratio Formulas
Understanding P/E Ratio
The price-to-earnings (P/E) ratio is one of the most widely used stock valuation metrics. It shows how much investors are willing to pay for each dollar of earnings, essentially representing the price of future earnings.
A P/E of 20 means investors pay $20 for every $1 of annual earnings. Higher P/Es suggest investors expect strong future growth or that the stock is overvalued. Lower P/Es may indicate undervaluation or poor growth prospects.
The S&P 500 historical average P/E is around 15-17. Growth stocks often trade at 25-50+, while value stocks may be 8-15. Context matters—compare to sector peers and historical ranges.
P/E Interpretation Guide
High P/E (25+)
Growth expectations high. Either undervalued growth stock or overpriced.
Average P/E (15-25)
Market-rate valuation. Typical for mature, stable companies.
Low P/E (<15)
Value territory. May be undervalued or facing challenges.
Negative P/E
Company has negative earnings (losses). P/E not meaningful.
Sector P/E Benchmarks
| Sector | Typical P/E | Growth Rate | Notes |
|---|---|---|---|
| Technology | 25-40 | 15-25% | High growth expected |
| Healthcare | 18-30 | 10-20% | Pipeline dependent |
| Financials | 10-15 | 5-10% | Asset-heavy |
| Utilities | 15-20 | 3-5% | Stable dividends |
| Consumer Staples | 18-25 | 5-10% | Defensive |
P/E Analysis Tips
Use PEG Ratio
PEG adjusts for growth. A PEG of 1.0 means P/E equals growth rate—fair value. Under 1.0 may be undervalued.
Compare Apples to Apples
Only compare P/Es within the same industry. A tech P/E of 30 and utility P/E of 15 are both 'normal'.
Forward vs Trailing
Trailing P/E uses past earnings, forward P/E uses estimates. Forward is more predictive but less reliable.
Watch for Earnings Quality
One-time gains inflate earnings temporarily. Use normalized earnings for accurate P/E.
Frequently Asked Questions
What is a good P/E ratio?
There's no universal answer. Compare to industry peers and historical averages. A 'good' P/E for a growth stock (30-40) would be expensive for a utility. Generally, below 15 is value territory, 15-25 is average, above 25 is growth.
Is a low P/E always a good buy?
Not necessarily. Low P/E stocks may be cheap for good reasons—declining business, industry headwinds, or one-time earnings spike. Investigate why the P/E is low before assuming it's undervalued.
What's the difference between P/E and EPS?
EPS (Earnings Per Share) is actual profit per share—a dollar amount. P/E is a ratio showing how many times EPS investors pay. If EPS is $2 and price is $40, P/E is 20x.
Why do some stocks have P/Es over 100?
Extremely high P/Es usually mean very low current earnings but high growth expectations (like early-stage tech companies), or temporarily depressed earnings. Investors are betting on future earnings growth.
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