Price–earnings ratio

"P/E" redirects here. For other topics, see PE (disambiguation).

The price–earnings ratio, also known as P/E ratio, P/E, or PER, is the ratio of a company's share price to the company's earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued.

As an example, if share A is trading at $24 and the earnings per share for the most recent 12-month period is $3, then share A has a P/E ratio of ⁠$24/$3/year⁠ = 8 years. Put another way, the purchaser of the share is expecting 8 years to recoup the share price. Companies with losses (negative earnings) or no profit have an undefined P/E ratio (usually shown as "not applicable" or "N/A"); sometimes, however, a negative P/E ratio may be shown. There is a general consensus among most investors that a P/E ratio of around 10 to 20 is "fairly priced" but this is sector and business dependent.

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