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.
Updated
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.
