P/E Ratio
The P/E ratio is the share price divided by earnings per share, which is the same as market cap divided by net income. It tells you how many years of earnings at the current level it would take to earn back the purchase price. TTM means the calculation uses trailing-twelve-month earnings.
How to read it
The number means little on its own. Compare it with three things: the company's own historical range, the median for its industry, and its earnings growth rate.
The comparison with its own history is the most useful: knowing where a company's P/E sits as a percentile of the past five years shows whether the market is currently valuing it on the expensive or the cheap side.
A high P/E means the market expects high growth. As long as that growth is delivered, a high P/E can persist for a long time; once growth slows, the multiple and the earnings get marked down together.
Common pitfalls
- For companies that are losing money or barely profitable, the P/E is negative or extremely high and tells you nothing. Price-to-sales or free cash flow is a better lens in those cases.
- In cyclical industries the P/E is lowest at the peak of earnings, which is often when the stock is most expensive, not cheapest.
On FinDog
Each stock page shows the current P/E, the industry median and a chart of the historical P/E. The Screener can filter by a maximum P/E and by "five-year percentile."
Open the Screener →Related terms
- Forward P/EForward P/E swaps past earnings for the consensus estimate of earnings over the next twelve months. It answers the question: if the analysts' forecasts are right, is today's price expensive?
- PEG RatioThe PEG ratio is the P/E ratio divided by the earnings growth rate (expressed as a percentage). It tries to answer whether a given P/E is reasonable once growth is taken into account. By convention, a PEG around 1 is considered fair and below 1 is on the cheap side.
- Earnings Per Share (EPS)Earnings per share is net income divided by shares outstanding: how much profit each share earned during the period. It is the most closely watched number in any earnings report, and it is also the denominator of the P/E ratio.