What is the P/E ratio and how do you use it?

Updated November 15, 2026 · examples use today’s data

The price-to-earnings ratio tells you how many dollars the market pays for every dollar a company earns in a year. The formula is simple: share price divided by earnings per share (EPS) over the last twelve months.

A real example

Apple trades at about $356.27 a share and earned about $8.98 per share over the last twelve months, so its P/E is about 39.7. Put differently: if Apple's profit never grew, it would take roughly 39.7 years of earnings to pay back today's price.

What is a good P/E?

There is no magic number. The long-run average for the US market sits around 16 to 20. A company whose earnings grow quickly deserves a higher P/E than one that is standing still, which is why fast growers like Nvidia (P/E about 20.6) and mature giants trade on very different multiples. Compare a company with its own history and with its peers, not with a single rule of thumb.

Trailing vs. forward P/E

The trailing P/E uses the last four reported quarters. The forward P/E uses what analysts expect the company to earn over the next year; for Apple it is about 34.4. A forward P/E well below the trailing one means analysts expect earnings to rise.

Common mistakes

A low P/E is not automatically cheap: sometimes the market expects profits to fall. A high P/E is not automatically expensive either. For loss-making companies the P/E is meaningless, so use price-to-sales or free cash flow instead. And one-off gains (selling a division, a tax benefit) can make a P/E look artificially low for a year.

Frequently asked questions

What does a negative P/E mean?

The company lost money over the last twelve months. A negative P/E has no useful meaning, so most sites, including ours, simply do not show one.

Where does the EPS in the P/E come from?

On Stock Analiz it is the sum of the last four quarters of diluted EPS from the company’s own SEC filings, adjusted for stock splits.

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Keep learning

What is earnings per share (EPS)?What does TTM (trailing twelve months) mean?What is an ETF and how is it different from a stock?What is a dividend and what is dividend yield?What is compound interest and why does it matter so much?What is intrinsic value and how is it calculated?

Educational content, not investment advice. Figures in the examples come from company filings and market prices and update automatically.