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P/E Ratio Calculator

A P/E on its own is a number without a scale. Add the growth rate and the earnings yield, and it becomes something you can compare against alternatives.

Price and earnings

Looking forward

To get PEG — the ratio that puts a P/E next to the growth paying for it.
P/E ratio—
Earnings yield—
Forward P/Eenter forward EPS
PEG ratioenter growth
Years of earnings to repay the price—

A P/E compares price to one year of profit and says nothing about debt, cash or the durability of those earnings. Comparing it across industries is close to meaningless; comparing it to the same company’s own history, and to its growth rate through PEG, is where it earns its keep.

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The ratios

P/E            = price ÷ earnings per share
earnings yield = EPS ÷ price          (the P/E inverted)
forward P/E    = price ÷ expected EPS
PEG            = P/E ÷ earnings growth rate

A $52.40 share with $3.40 of trailing earnings has a P/E of 15.4 — you pay 15.4 years of current earnings for the share — and an earnings yield of 6.5%.

Inverting it is what makes it comparable

A P/E of 15 means nothing next to a bond, a savings rate or a rental property. 6.5% compares to all three immediately.

That is the practical use of the earnings yield, and it is why it sits high on this page rather than as a footnote. When cash pays 5%, a stock at a 6.5% earnings yield is offering 1.5 points of extra return for equity risk. When cash paid 0.5%, the same share at the same price was offering six points. The share did not change; the alternative did — which is most of the reason valuation multiples across the market rise and fall with interest rates.

PEG, and its honest limits

A high P/E is not expensive if the earnings are growing quickly. PEG divides one by the other:

PEG Conventional reading
Under 1 Growth is cheap relative to the price
Around 1 Fairly priced for its growth
Above 2 The price requires the growth to continue and then some

Two cautions. The growth rate is a forecast, usually an analyst consensus, and consensus forecasts are systematically optimistic — so PEG inherits an error it does not display. And the ratio breaks down at the extremes: a company growing 2% a year gets a flattering PEG from a very low P/E, which says more about the arithmetic than the business.

What a P/E cannot see

It compares price to a single year of accounting profit. It does not know about:

  • Debt. Two companies with the same P/E and very different balance sheets are not equally priced. Enterprise value multiples exist for this reason.
  • The quality of the earnings. One-off gains, asset sales and accounting choices all land in EPS.
  • Whether the earnings repeat. A cyclical company at the top of its cycle shows its lowest P/E precisely when it is most expensive, because the denominator is at a peak that is about to fall.

That last one inverts the usual intuition and is worth remembering: for cyclicals, a low P/E is often a warning rather than a bargain.

FAQ

How do I calculate the P/E ratio?

Divide the share price by earnings per share. A $52.40 share with $3.40 of EPS has a P/E of 15.4. Use trailing twelve-month EPS for the trailing figure and estimated EPS for the forward one.

What is a good P/E ratio?

It depends entirely on the industry, the growth rate and the level of interest rates. Broad indices have long averaged in the mid-to-high teens. The comparison worth making is against the same company's own history and its sector, not against a fixed number.

What is the difference between trailing and forward P/E?

Trailing uses earnings already reported; forward uses estimates. Forward P/E is usually lower, because estimates usually assume growth — and because they are usually too optimistic, which is worth discounting.

What is a good PEG ratio?

Under 1 is the conventional threshold for growth being cheaply priced. Treat it as a rough screen rather than a verdict, since the growth input is a forecast and the ratio misbehaves for very slow-growing companies.

Can a P/E be negative?

Not usefully. When earnings are negative the ratio is undefined rather than meaningful, and data providers usually show it as blank. Loss-making companies are assessed on revenue multiples, cash flow or assets instead.

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