Valuation ratio

P/E Ratio (Price-to-Earnings)

The price-to-earnings (P/E) ratio compares a stock's price to its earnings per share. It tells you how much investors are paying for each unit of profit — effectively, how many years of current earnings it would take to pay back the price. It's one of the most widely used valuation shortcuts.

Formula

P/E = Price per Share / Earnings per Share (EPS)

How to interpret it

A lower P/E can suggest a cheaper stock, a higher P/E a more expensive or higher-growth one. But "high" and "low" only make sense relative to the company's growth, its industry, and the broader market. A P/E of 10 may be cheap for a tech firm but normal for a utility.

Example

If a stock trades at $50 and earned $5 per share last year, its P/E is 50 / 5 = 10. Investors are paying 10 times annual earnings. A similar company trading at a P/E of 25 is priced more richly by this measure.

Common uses

Compare a stock's P/E with its industry peers to spot relatively cheap or expensive names.
Track a company's P/E against its own historical range to judge if it's unusually high or low.
Combine a low P/E with quality filters to avoid value traps disguised as bargains.
Screen out richly priced stocks where the P/E far exceeds the company's growth rate.

Limitations

P/E is meaningless when earnings are negative, and easily distorted by one-off gains or losses.
It ignores debt, growth and cash flow, so a low P/E can be a value trap and a high P/E can be justified by fast growth. Always pair it with context.

In Fin Screener

Fin Screener shows the P/E ratio for each stock and lets you filter by it, so you can compare valuations within a sector or against a company's own history.

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