Equities
Price-to-Earnings Ratio
Price-to-earnings ratio = share price / earnings per share, where earnings per share is net income over the past twelve months divided by common shares outstanding.
How the P/E ratio is calculated
The SEC's Investor.gov glossary describes the P/E ratio as a way of gauging whether a stock price is high or low compared with the past or with other companies, calculated by dividing the current stock price by current earnings per share, with earnings per share equal to the past twelve months of earnings divided by common shares outstanding. That version is the trailing P/E. A forward P/E substitutes analysts' estimated earnings for the next twelve months, so the two can differ sharply when profits are changing quickly. Because the denominator is accounting earnings, the ratio is sensitive to one-time items, buybacks that shrink the share count and losses that make the ratio undefined. Data providers also differ in whether they use reported (GAAP) earnings or adjusted earnings, so two quoted P/E figures for the same stock on the same day can disagree.
Hypothetical example: a company earned $400 million on 100 million shares, so EPS is $4.00. At $60 a share the trailing P/E is 15; with $5.00 expected next year the forward P/E is 12. See 
market capitalization.
What a high or low P/E tells you
A P/E of 15 means investors pay $15 for each $1 of trailing annual earnings, or equivalently an earnings yield of 1 / 15 ≈ 6.7%. A higher ratio usually reflects expectations of faster earnings growth, lower perceived risk or lower interest rates, while a lower ratio can reflect slower growth, cyclical peak earnings or investor doubts about the quality of the profits. The ratio is most informative when compared with the same company's history, with peers in the same industry and with the level of interest rates, because the alternative to owning a stock is often a bond whose yield sets a benchmark. A stock can also become cheaper on a P/E basis without its price falling if earnings grow, and a falling P/E on stable earnings, often called multiple compression, is a common source of losses even for profitable companies.
Hypothetical example: earnings stay at $4.00 but the P/E falls from 15 to 12, so the price drops from $60 to $48, a 20% loss with no change in profits. Model this in the P/E compression calculator and see total return.
Example
Hypothetical: a stock at $60 with trailing earnings of $4.00 per share has a P/E of 15; if the market re-rates it to a P/E of 12 with unchanged earnings, the price falls to $48.
Real-company example from SEC filings
P/E ratio using Apple Inc.'s reported EPS
Apple Inc. reported diluted EPS of $7.46 for the fiscal year 2024-09-29 to 2025-09-27. The earnings side of the ratio is fixed by that filing; the price side changes every trading day. The share prices below are hypothetical, not quotes.
| Hypothetical price | ÷ diluted EPS | P/E on fiscal-year EPS |
|---|---|---|
| $150 | $7.46 | 20.1× |
| $200 | $7.46 | 26.8× |
| $250 | $7.46 | 33.5× |
Diluted EPS for Apple Inc.: $7.46, fiscal year 2024-09-29 to 2025-09-27. Source: SEC filing 0000320193-25-000079 via the SEC EDGAR XBRL frames API, snapshot 2026-10-06. AAPL reported financials
Common mistakes
- Comparing a trailing P/E with a forward P/E as if both used the same earnings.
- Comparing P/E ratios across companies with very different margins or cyclicality without normalizing earnings first.
- Quoting a P/E for a company with negative earnings. Intel Corporation reported diluted EPS of −$0.06 for the fiscal year 2024-12-29 to 2025-12-27, so any price divided by that figure produces a negative number with no useful valuation meaning. SEC filing 0000050863-26-000011 · INTC reported financials
Related terms
Put it to work
Price-to-Earnings Ratio — FAQ
What is Price-to-Earnings Ratio?
The price-to-earnings (P/E) ratio is a company's share price divided by its earnings per share. It shows how many dollars investors pay for each dollar of annual earnings.
Can you give an example of Price-to-Earnings Ratio?
Hypothetical: a stock at $60 with trailing earnings of $4.00 per share has a P/E of 15; if the market re-rates it to a P/E of 12 with unchanged earnings, the price falls to $48.
What is a good P/E ratio?
There is no universal number. A P/E is only meaningful compared with the same company's history, with peers in the same industry and with prevailing interest rates. High-growth companies and low-rate environments tend to support higher ratios; cyclical businesses near peak earnings often show deceptively low ones.
What is the difference between trailing and forward P/E?
Trailing P/E divides the price by earnings per share from the past twelve months, the definition Investor.gov uses. Forward P/E divides the price by estimated earnings for the next twelve months. Forward figures depend on analyst forecasts, so they can be revised and differ across data providers.
Can a P/E ratio be negative?
Mathematically yes, if the company reported a net loss, but most data providers show it as not applicable rather than a negative number, because a negative multiple has no useful interpretation. Investors typically use other measures such as price-to-sales or price-to-book for loss-making companies.
The term is free. The call is membership.
Price-to-Earnings Ratio is the vocabulary. Members get the monthly thesis that uses it: what changed, who could benefit, and what would prove the view wrong. $39/month or $249/year.
Members-only research
$39/mo or $249/yr · cancel future renewals anytime · sources included