P/E ratio

How it is used

The most quoted valuation ratio. Analysts say a stock trades at a P/E ratio of 12, or 'at 12 times earnings'. They compare it with the sector, the market and the company's own history; a trailing P/E uses past earnings and a forward P/E uses forecasts.

Example sentences

1. The bank trades at a P/E ratio of only 5, well below its regional peers.

2. A high P/E ratio often means investors expect strong future growth.

Common collocations

• high P/E ratio
• low P/E ratio
• forward P/E
• trailing P/E
• trade at a P/E of

Related terms

• earnings per shareA company's net profit for a period divided by the number of its shares. It shows how much profit belongs to each single share.
• price-to-book ratioA company's share price divided by its book value per share, or its market capitalization divided by its book value. It compares market value with accounting value.
• overvaluedPriced higher than its estimated real value, based on things like profits, growth or assets. It describes an opinion, not a proven fact.
• undervaluedPriced lower than its estimated real value, based on profits, assets, cash flow or growth prospects. Like 'overvalued', it is a judgement.
• market capitalizationThe total market value of a company's shares, calculated by multiplying the share price by the number of shares in issue.

More terms: Valuation & Ratios

• book value
• return on equity