New to this? Read the plain English guide first.
Enter a share price and earnings per share to see how much you pay for each dollar of profit.
The price to earnings ratio, or P/E, compares a stock price to the profit the company earns per share. It tells you how many dollars investors pay today for each dollar of yearly earnings. A P/E of 15 means you pay $15 for every $1 of profit. It is one of the most common ways to judge whether a stock looks cheap or expensive compared with its peers and its own history.
P/E equals the share price divided by earnings per share. The earnings yield is the reverse: earnings per share divided by the price, shown as a percentage. A P/E of 20 equals an earnings yield of 5 percent.
A stock trades at $50 and earned $2.50 per share over the last twelve months. The P/E is 50 divided by 2.50, which is 20. The earnings yield is 2.50 divided by 50, or 5 percent. If similar companies trade at a P/E of 15, this stock is priced at a premium, and you should ask whether faster growth or higher quality explains it.
Compare P/E with close competitors and with the company own five year range. A lower number is not automatically better, because a low P/E can signal that profits are expected to fall. A higher number is not automatically worse, because fast growers often deserve more. Use P/E as a starting question, then check growth, debt and cash flow.
Comparing P/E across very different industries, using one unusually good or bad year of earnings, and ignoring negative earnings, where P/E has no meaning. Cyclical companies often look cheapest at the top of the cycle.
Read our guide on how to value a stock and how to read an earnings report. See every term in the investing glossary, try more tools in investor tools, or test yourself in Stock Jeopardy.
For education only, not investment advice. Results are estimates based on the numbers you enter.