Glossary · Defined term
P/E ratio
The P/E ratio is a stock's share price divided by its earnings per share, showing what investors pay per dollar of earnings.
Last updated Oct 2, 2026
What it means
The price-to-earnings ratio is a stock's share price divided by its earnings per share, showing what investors pay for each dollar of earnings. A P/E of 20 means investors pay $20 for every $1 of annual earnings. The ratio is used to compare valuations across peers, sectors, and history: high P/Es suggest investors expect strong future growth, while low P/Es can signal modest expectations or a bargain. Earnings can be trailing (the past twelve months) or forward (analyst estimates), and the two can tell different stories. P/E is meaningless for companies with no earnings, which is why unprofitable firms are valued on other metrics.
An example
For illustration, a stock trades at $100 with earnings per share of $5, giving a trailing P/E of 20. A competitor trades at $60 with EPS of $6, a P/E of 10. The first stock is priced at twice the earnings multiple of the second, so investors are paying more per dollar of current profit, presumably expecting faster growth.