By Ziv Shay | Updated June 2026

P/E Ratio (Price-to-Earnings)

A valuation metric comparing a company’s share price to its earnings per share, showing how much investors pay per dollar of profit.

The price-to-earnings ratio is the most common way to gauge whether a stock is expensive or cheap relative to its profits. A high P/E suggests investors expect strong future growth (or that the stock is overvalued); a low P/E may signal a bargain or a struggling business. P/E is most useful when comparing companies in the same industry.

Formula

Example

A stock trading at $100 with $5 earnings per share has a P/E of 20 — investors pay $20 for every $1 of annual profit. The S&P 500’s long-run average P/E is roughly 15-20.

Related Terms

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