Price to earnings ratio (P/E)

Category:Ratios
Alternative names: PE PE ratio price multiple earnings multiple

What is Price to earnings ratio

The price to earnings ratio is valuation metric that measure the share price relative the the earnings per share (EPS) of a company. In essence it shows how much are investors willing to pay for one dollar of earnings.

How to calculate price to earnings (formula)

The P/E ratio is calculated by dividing the current stock price by the earnings per share (EPS).

Price to Earnings Ratio = Price / Earnings Per Share (EPS)

What is a good price to earnings ratio

The PE ratio can be seen as units of years, which can be interpreted as the number of years of earnings to pay back the purchase price. If a company has PE ratio of 20, that means that investors are willing to pay 20 dollars for one dollar of earnings by this company. Usually high PE ratio indicates increased demand for the stock of a company because investors anticipate earnings growth in the future.

Stocks with low PE ratios

Name Price to earnings (P/E) Marketcap Industry
NRG Nrg Energy Inc 1.89 $7.46B Utilities - Independent Power Producers
NLOK NortonLifeLock Inc 3.23 $12.34B Software - Infrastructure
XRX Xerox Holdings Corp 4.09 $4.15B Information Technology Services
MET Metlife Inc 5.06 $35.69B Insurance - Life
KIM Kimco Realty Corp 5.69 $5.56B REIT - Retail

What can price to earnings ratio tell us

The PE ratio is one of the most commonly used stock valuation tools. The PE ratio number shows the current investor demand for a company share. The PE ratio of a company can be used to compare the value of different company’s in the market in relationship to their profitability. Also analysing historic PE ratio of a stock will tell the investors how the value of the company has changed over time. For example companies who have accelerated growth will typically have increasing PE ratio as investors will project the growth in the feature. Cyclical companies will have PE ratio that varies depending on where in the cycle the business is at the moment.

Related terms