P/E Ratio (Price-to-Earnings)
Also called: price to earnings, PE ratio, earnings multiple
Share price divided by earnings per share — how many dollars investors pay for each dollar of annual profit.
The P/E ratio is the most common valuation gauge: price ÷ earnings per share. A P/E of 20 means investors pay $20 for every $1 of annual earnings. Trailing P/E uses the last 12 months of earnings; forward P/E uses estimates. High P/Es imply the market expects strong growth; low P/Es can mean a bargain — or a troubled business.
P/E only makes sense in context: against the company's history, its sector, and its growth rate (a fast grower 'deserves' a higher multiple — see the PEG ratio). It's meaningless for companies with no earnings, which is common for early-stage growth names.
On StockSetups
P/E is a screener field on each StockSetups dossier, so you can filter breakouts by valuation — for example, finding momentum names that aren't priced for perfection.
Frequently asked
What is a good P/E ratio?
There's no universal number — it depends on the sector and growth rate. A mature company might trade at 10–20× while a fast grower trades far higher. Compare a stock's P/E to its peers and its own history, and weigh it against growth via the PEG ratio.
Related terms
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