Price to Earnings Ratio (PE Ratio)


PE Ratio, or Price to Earnings Ratio, is a valuation ratio where a company's current share price is divided by its per-share earnings.

Chart 1: Price/Earnings Ratio (P/E)
  • PE Ratio is one of the most widely watched measures of valuation for both the stock market as a whole and for individual stocks. Many use it to determine whether the market (or a stock) is overvalued, fairly valued, or undervalued.
  • In general, a high PE suggests that investors are expecting higher earnings growth in the future compared to companies with a lower PE.
  • PE is sometimes referred to as the "multiple," because it shows how much investors are willing to pay per dollar of earnings. If a company is trading at a PE of 15, an investor would be paying $15 for $1 of earnings.

The PE Ratio is calculated as follows:

PE Ratio = (Market Value per Share) / (Earnings per Share (EPS))

Where: EPS is the summation of the last four quarters earnings.

Technical analysis focuses on market action — specifically, volume and price. Technical analysis is only one approach to analyzing stocks. When considering which stocks to buy or sell, you should use the approach that you're most comfortable with. As with all your investments, you must make your own determination as to whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation. Past performance is no guarantee of future results.