P/E ratio

How many years of earnings the price equals

In detail

The price-to-earnings ratio is the share price divided by earnings per share. It says how many years of today's profit it would take to add up to the price. Lower generally reads as cheap relative to earnings, higher as expensive. But companies expected to grow fast carry higher P/Es, and typical levels vary by sector, so compare within a sector.

Example

At a price of $1,500 and EPS of $150, the P/E is 10. At today's profit, ten years of earnings equals the price.

Related terms

EPS P/B ratio Sector PEG ratio Earnings yield

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For learning, not investment advice. Decisions are your own.