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P/E Ratio Formula:
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The Price-to-Earnings (P/E) ratio is a valuation metric that compares a company's stock price to its earnings per share. It helps investors determine if a stock is overvalued or undervalued relative to its earnings.
The calculator uses the P/E ratio formula:
Where:
Explanation: The P/E ratio shows how much investors are willing to pay per dollar of earnings. A higher P/E might indicate growth expectations, while a lower P/E might suggest undervaluation.
Details: The P/E ratio is one of the most widely used metrics in stock valuation. It helps compare companies within the same industry and assess market expectations for future growth.
Tips: Enter the current stock price and the company's earnings per share. Both values must be positive numbers. The calculator will compute the P/E ratio instantly.
Q1: What is a good P/E ratio?
A: There's no universal "good" P/E ratio as it varies by industry. Generally, ratios between 15-25 are considered average, but tech companies often have higher ratios due to growth expectations.
Q2: How does P/E ratio differ from forward P/E?
A: Standard P/E uses trailing earnings (past 12 months), while forward P/E uses projected future earnings. Forward P/E is often considered more relevant for growth companies.
Q3: Can P/E ratio be negative?
A: Yes, if a company has negative earnings (is losing money), the P/E ratio will be negative. This typically indicates a company in financial distress or heavy investment phase.
Q4: What are the limitations of P/E ratio?
A: P/E doesn't account for debt levels, growth rates, or industry differences. It should be used alongside other metrics like PEG ratio, P/B ratio, and debt-to-equity ratio.
Q5: How often should I check a company's P/E ratio?
A: P/E ratios should be monitored quarterly with earnings reports, but significant stock price movements can change the ratio daily. Long-term investors typically review it with each earnings season.