Price-to-earnings ratio (P/E)
price-to-earnings ratio · P/E ratio · P/E · PE ratio
The price-to-earnings ratio (P/E) divides a share price by earnings per share (EPS), showing how many times its annual profit investors are paying for a company.
In plain terms
If a share costs $100 and the company earns $5 per share a year, the P/E is 20. At today's profit level, it would take 20 years of earnings to match the price. A trailing P/E uses the last 12 months of earnings; a forward P/E uses expected earnings for the next 12 months.
Why it matters
A high P/E means investors expect strong profit growth; a low P/E suggests low expectations or higher perceived risk. Typical levels vary by industry, so comparisons work best within a sector or against a company's own history.
How it connects to markets
- Rising interest rates: future profits are worth less today, so high-P/E growth stocks tend to fall hardest
- Falling rates: the market's overall P/E tends to expand, with prices rising faster than profits
- An earnings miss: lower profit forecasts can make the same share price look expensive overnight