What is a good P/E ratio?

There is no universal number. A P/E around 15 is often cited as a long-run market average, but fast-growing companies trade higher and slow-growing ones lower. Always compare against the company's own history and its peers.

Is a low P/E always cheap?

No. A low P/E can mean a bargain or a business the market expects to shrink. Check why earnings are priced so low before assuming it is undervalued.

Glossary term

P/E ratio

The price-to-earnings (P/E) ratio is the share price divided by earnings per share. It tells you how much investors are paying for each euro of a company's profit.

Formula Share price ÷ Earnings per share (EPS)

The P/E ratio — price-to-earnings — is the single most quoted valuation metric in the stock market. It answers: how much are you paying for each euro of profit the company earns?

How to calculate the P/E ratio

Divide the share price by the earnings per share (EPS):

A stock at €40 with EPS of €2 has a P/E of €40 ÷ €2 = 20. You are paying 20× one year’s earnings.

How to read it

A high P/E means investors expect strong future growth — they’re willing to pay more today for profits they hope will grow. A low P/E can mean the stock is cheap, or that the market expects earnings to fall.

The number is only meaningful in context:

Compare to the company’s own historical P/E.
Compare to direct competitors.
Remember that earnings can be distorted by one-off items.

Trailing vs forward P/E

Trailing P/E uses the last 12 months of actual earnings. Forward P/E uses analysts’ estimates for the year ahead. Growth investors watch the forward figure; value investors often trust the trailing one.

P/E is a starting point, not a conclusion — pair it with cash flow and the balance sheet before you decide anything.