P/E Ratio Calculator
Calculate a stock's Price-to-Earnings ratio to evaluate whether it's overvalued or undervalued relative to its earnings.
P/E Ratio
20.00x
Earnings Yield
5.00%
Assessment
Fair value range
Below 10:Potentially undervalued
10-20:Fair value range
20-30:Growth premium
Above 30:High expectations
S&P 500 historical average P/E: ~16-17x
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How It Works
- 1Choose between P/E Calculator (calculate P/E from price and earnings) or Fair Value Calculator (estimate fair price from a target P/E).
- 2Enter the current stock price and earnings per share (EPS) to compute the P/E ratio.
- 3Review the P/E ratio and earnings yield to understand how much you're paying per dollar of earnings.
- 4Use the assessment to gauge whether the stock trades at a discount, fair value, or premium.
- 5Switch to the Fair Value tab to estimate what the stock should be worth given a target P/E multiple and compare it to the current price.
The formula
- P/E ratio = Share price ÷ Earnings per share (EPS)
- Fair value = EPS × Target P/E
- Upside or downside = (Fair value − Current price) ÷ Current price
Worked example
A stock trades at $150 and earns $7.50 per share. You consider a P/E of 15 fair.
- 1P/E ratio: $150 ÷ $7.50 = 20.0
- 2Fair value at a P/E of 15: $7.50 × 15 = $112.50
- 3Upside or downside: ($112.50 − $150) ÷ $150 = −25.0%
The stock trades at 20 times earnings, 25% above the fair value implied by a P/E of 15.
Frequently Asked Questions
What is the Price-to-Earnings (P/E) ratio?
The P/E ratio measures how much investors are willing to pay per dollar of a company's earnings. It is calculated by dividing the stock price by the earnings per share (EPS). A higher P/E suggests investors expect higher future growth, while a lower P/E may indicate the stock is undervalued or that growth expectations are modest.
What is a good P/E ratio for a stock?
There is no single 'good' P/E ratio because it varies by industry, growth stage, and market conditions. The S&P 500 historical average is around 16-17x. Growth stocks often trade at 25-50x or higher, while value stocks may trade at 8-15x. Always compare a stock's P/E to its industry peers and its own historical average.
What is the difference between trailing P/E and forward P/E?
Trailing P/E uses the company's actual earnings from the past 12 months, while forward P/E uses analyst estimates of future earnings for the next 12 months. Forward P/E is more forward-looking but relies on estimates that may be inaccurate. This calculator works with whichever EPS value you provide.
What is earnings yield and how does it relate to P/E?
Earnings yield is the inverse of the P/E ratio, expressed as a percentage (EPS / Price x 100). It represents the percentage of each dollar invested that is earned by the company. A stock with a P/E of 20 has an earnings yield of 5%. Earnings yield is useful for comparing stocks to bond yields and other asset classes.
Why can a low P/E ratio be misleading?
A low P/E does not automatically mean a stock is a bargain. It could indicate declining earnings, cyclical peaks (earnings temporarily inflated), accounting issues, or structural problems with the business. Always investigate why a stock has a low P/E before assuming it is undervalued. Similarly, a high P/E may be justified if the company is growing earnings rapidly.