Price/Earnings (P/E) Ratio Calculator
Calculate the P/E ratio of a stock using current market price and earnings per share (EPS). The P/E ratio helps investors assess whether a stock is overvalued or undervalued relative to its earnings.
Input Values
Understanding the P/E Ratio
What is the P/E Ratio?
The Price-to-Earnings ratio (P/E ratio) compares a company's stock price to its earnings per share. It shows how much investors are willing to pay per dollar of earnings.
P/E Ratio Formula
P/E Ratio = Stock Price ÷ Earnings Per Share (EPS)
Key Components
- Stock Price: Current market price of one share
- EPS: Net income divided by outstanding shares (usually trailing 12 months)
Real-World P/E Ratio Examples
Example 1: Tech Company
Scenario: Tech company trading at $150/share with EPS of $5
Calculation: 150 ÷ 5 = 30
P/E Ratio: 30x
Interpretation: Investors pay $30 for each $1 of earnings
Example 2: Value Stock
Scenario: Company trading at $20/share with EPS of $2.50
Calculation: 20 ÷ 2.50 = 8
P/E Ratio: 8x
Interpretation: Considered undervalued relative to industry average
Example 3: Negative Earnings
Scenario: Startup with stock price $15 and EPS of -$1.20
Calculation: N/A (Negative EPS)
Interpretation: P/E ratio not meaningful for negative earnings
Example 4: High Growth Company
Scenario: Biotech firm at $80/share with EPS of $0.50
Calculation: 80 ÷ 0.50 = 160
P/E Ratio: 160x
Interpretation: High growth expectations priced in
Example 5: Mature Corporation
Scenario: Utility company at $45/share with EPS of $3
Calculation: 45 ÷ 3 = 15
P/E Ratio: 15x
Interpretation: Typical for stable, low-growth industries
Example 6: Sector Comparison
Scenario: Comparing two retail companies:
Company A: $60 stock price, $4 EPS → P/E 15x
Company B: $75 stock price, $3 EPS → P/E 25x
Analysis: Company A may be undervalued relative to Company B
Example 7: Market Index
Scenario: S&P 500 index at 4,500 with aggregate EPS of $200
Calculation: 4500 ÷ 200 = 22.5
P/E Ratio: 22.5x (Market-wide valuation measure)
Example 8: Trailing vs Forward P/E
Scenario: Company with:
Current Price: $100
Trailing EPS: $4 (Trailing P/E = 25x)
Forward EPS: $5 (Forward P/E = 20x)
Analysis: Shows earnings growth expectations
Example 9: Cyclical Industry
Scenario: Auto manufacturer during recession:
Stock Price: $30
EPS: $1 (P/E 30x) vs Normal EPS: $3 (P/E 10x)
Analysis: High P/E may indicate cyclical earnings trough
Example 10: Dividend Stock
Scenario: High-dividend stock at $50 with EPS $5
Calculation: 50 ÷ 5 = 10x P/E
Analysis: Low P/E may indicate value orientation
P/E Ratio FAQs
1. What's a good P/E ratio?
There's no universal "good" ratio. Compare to industry averages and historical values. Typically, 15-25x is average for large caps.
2. Difference between trailing and forward P/E?
Trailing uses past EPS, forward uses estimated future EPS. Forward P/E anticipates growth.
3. Limitations of P/E ratio?
Doesn't account for growth rates, debt, or industry differences. Less useful for negative earnings.
4. How to handle negative EPS?
P/E becomes meaningless. Investors might use other metrics like Price/Sales instead.
5. Why do growth stocks have high P/E?
Investors pay premium for future earnings growth potential.
6. Can P/E be compared across industries?
Not directly. Tech companies typically have higher P/Es than utilities.
7. How is EPS calculated?
EPS = (Net Income - Preferred Dividends) ÷ Outstanding Shares
8. What's PEG ratio?
P/E ratio divided by earnings growth rate. Helps account for growth in valuation.
9. Difference between absolute and relative P/E?
Absolute is direct calculation. Relative compares to market/benchmark.
10. How often should P/E be checked?
Regularly, as stock prices and earnings change quarterly. Use latest data.
