Price-to-earnings ratio

A ratio, not a verdict

Compare like with like

A worked example

A stock at $50 with $2.50 earnings per share trades at 20 times earnings. Whether that is expensive depends on its own history, its peers and how reliable those earnings are.

How we use it

Valuation ratios are compared against a company's own history and its peer set inside Valuation Intelligence. That lens is research-only: it contributes 0% to the Suggested Investment Score and never produces a price target.

Related terms

• Earnings per share
• Valuation
• Free cash flow

Keep reading

• Investing Glossary

  Every investing term we use, defined once and in plain English — from compounding and drawdown to Form 13F and share dilution.

• Compound interest

  Compound interest is growth earned on both your original money and on the growth it has already produced. It is the reason long holding periods matter more th

• Dollar-cost averaging

  Dollar-cost averaging means investing a fixed amount on a fixed schedule regardless of price. It removes the need to decide when to invest, and it buys more s

• Free cash flow

  Free cash flow is the cash a business has left after paying the costs of running and maintaining itself. It is the cash that can fund dividends, buybacks, deb

• Expense ratio

  An expense ratio is the annual percentage of your money a fund keeps to run itself. It is deducted from returns quietly, every year, whether the fund performs

• Maximum drawdown

  Maximum drawdown is the largest peak-to-trough fall an investment has suffered over a period. It measures the worst stretch an investor would have had to sit