Metric
Price-to-Earnings (P/E) Ratio
What you pay today for each dollar of current earnings.
Formula
Share Price ÷ Earnings Per Share
Definition
P/E is the most common valuation shorthand. It tells you how many years of current earnings the market is pricing in.
Why it matters
Useful relative comparison, but always consider growth rate and earnings quality. High P/E isn't always expensive; low P/E isn't always cheap.
Building blocks
- Share Price
- Current market price of one share.
- Earnings Per Share (EPS)
- Net income divided by the number of shares outstanding.
Educational information only, not investment advice. Turtleway helps you understand what a metric or concept means; it does not tell you what to buy or sell.