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  1. Knowledge
  2. ›Glossary
  3. ›P/E Ratio (Price-to-Earnings Ratio)

Markets

P/E Ratio (Price-to-Earnings Ratio)

The price-to-earnings (P/E) ratio is a valuation metric: the share price divided by earnings per share.

The price-to-earnings ratio (P/E ratio) compares the current share price with earnings per share. It shows how many years it would take to "earn back" the current price through profits.

A low P/E suggests a cheap valuation, a high P/E an expensive one. Industry and growth prospects have to be taken into account, though: technology companies typically carry higher P/Es than utilities.

A distinction is drawn between the trailing P/E (based on the last year's earnings) and the forward P/E (based on analysts' forecasts).

Related terms

Stock/ShareReturn/YieldMarket Capitalization

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