P/E Ratio Calculator
Calculate the Price-to-Earnings (P/E) ratio from stock price and earnings per share. Compare valuations and assess whether a stock is over- or
Calculator
Adjust values & calculateForward PE Estimates
Valuation Scenarios (EPS: $6.50)
Formula
The PE ratio divides the current market price of a share by the earnings per share. A higher PE suggests investors expect higher future growth. The PEG ratio further adjusts by dividing PE by the expected growth rate, where PEG = 1.0 is considered fair value. Earnings yield (EPS/Price) is the inverse of PE and can be compared directly to bond yields.
Last reviewed: January 2026
Worked Examples
Example 1: Tech Stock Valuation Analysis
Example 2: Value Stock Screening
Background & Theory
The PE Ratio Calculator applies the following established principles and formulas. Finance and investing rest on the foundational concept of the time value of money: a dollar received today is worth more than a dollar received in the future, because present funds can be deployed to earn a return. This principle underlies virtually every valuation technique in modern finance. The future value of a present sum P growing at rate r over n periods is expressed as FV = P(1 + r)^n, while the present value of a future cash flow FV is PV = FV / (1 + r)^n. Compound growth amplifies returns significantly over long horizons, a dynamic often described as the eighth wonder of the world. Net Present Value (NPV) extends these mechanics to evaluate investment projects by summing the present values of all expected cash flows minus the initial outlay: NPV = sum[CF_t / (1 + r)^t] - C_0. A positive NPV indicates the project creates value above the required return. The Internal Rate of Return (IRR) is the discount rate that sets NPV to zero, providing a single percentage benchmark for project comparison. The risk-return tradeoff is the central tension of investment theory. Higher expected returns generally require accepting greater uncertainty. Harry Markowitz formalized this in Modern Portfolio Theory by demonstrating that portfolio variance can be reduced through diversification when assets are imperfectly correlated. The efficient frontier represents the set of portfolios offering the maximum return for a given level of risk. The Capital Asset Pricing Model (CAPM) extends this by introducing the market portfolio as a reference, defining expected return as E(r) = r_f + beta * (E(r_m) - r_f), where beta measures an asset's sensitivity to systematic market risk. Asset classes — equities, fixed income, real assets, and alternatives — differ in their return profiles, liquidity, and correlations. Strategic asset allocation determines long-run target weights based on investor objectives and risk tolerance, while tactical allocation permits short-run deviations to exploit perceived mispricings. Discount rates used in valuation models must reflect the cost of capital appropriate to the risk of the cash flows being discounted, a point stressed in corporate finance texts from Brealey, Myers, and Allen through to Damodaran.
History
The history behind the PE Ratio Calculator traces back through the following developments. The formal practice of lending at interest dates to ancient Mesopotamia, where the Code of Hammurabi around 1750 BCE regulated interest rates on grain and silver loans. Banking as an institutional activity took root in medieval Italy, with merchant bankers in Florence and Venice financing trade across Europe through instruments such as bills of exchange. The Medici family operated one of the most sophisticated banking networks of the fifteenth century, pioneering double-entry bookkeeping and correspondent banking relationships. Organized equity markets emerged in the early seventeenth century. The Dutch East India Company (VOC), chartered in 1602, issued shares to the public and created the Amsterdam Stock Exchange — widely regarded as the world's first formal stock exchange. The VOC allowed investors to buy and sell shares freely, establishing the template for the joint-stock company. The period also produced the Dutch tulip mania of 1636 to 1637, one of history's first recorded speculative bubbles, in which tulip bulb futures contracts reached extraordinary prices before collapsing. England's financial revolution followed in the late seventeenth century with the founding of the Bank of England in 1694 and the development of government bond markets. The South Sea Bubble of 1720 illustrated the dangers of speculative excess and contributed to early securities regulation. Throughout the eighteenth and nineteenth centuries, industrialization created enormous demand for capital, fueling the expansion of stock exchanges in London, Paris, New York, and beyond. The New York Stock Exchange, formalized in 1817, became the world's dominant equities market by the twentieth century. The Great Crash of 1929 and subsequent Great Depression prompted the US Securities Act of 1933 and Securities Exchange Act of 1934, establishing the SEC and mandatory disclosure requirements. Harry Markowitz published his landmark portfolio selection paper in 1952, launching quantitative finance. The CAPM emerged in the 1960s through work by Sharpe, Lintner, and Mossin. John Bogle launched the first retail index fund in 1976, democratizing diversified investing and challenging active management orthodoxy.
Frequently Asked Questions
Formula
PE Ratio = Stock Price / Earnings Per Share (EPS)
The PE ratio divides the current market price of a share by the earnings per share. A higher PE suggests investors expect higher future growth. The PEG ratio further adjusts by dividing PE by the expected growth rate, where PEG = 1.0 is considered fair value. Earnings yield (EPS/Price) is the inverse of PE and can be compared directly to bond yields.
Worked Examples
Example 1: Tech Stock Valuation Analysis
Problem: A tech company trades at $150/share with EPS of $6.50, expected growth of 15%, and industry average PE of 22. Analyze the valuation.
Solution: PE Ratio = $150 / $6.50 = 23.08\nEarnings Yield = $6.50 / $150 = 4.33%\nPEG Ratio = 23.08 / 15 = 1.54\nFair Value (Industry PE) = $6.50 x 22 = $143.00\nPremium = ($150 - $143) / $143 = 4.9% overvalued\n\nForward PE (Year 1) = $150 / ($6.50 x 1.15) = $150 / $7.48 = 20.07\nForward PE (Year 2) = $150 / ($6.50 x 1.15^2) = $150 / $8.60 = 17.45
Result: PE: 23.08 | PEG: 1.54 | Industry Fair Value: $143.00 | 4.9% premium to industry
Example 2: Value Stock Screening
Problem: A bank stock trades at $45/share with EPS of $5.00, 5% growth, industry PE of 12. Is it undervalued?
Solution: PE Ratio = $45 / $5.00 = 9.0\nEarnings Yield = $5.00 / $45 = 11.11%\nPEG Ratio = 9.0 / 5 = 1.80\nFair Value (Industry PE) = $5.00 x 12 = $60.00\nDiscount = ($45 - $60) / $60 = -25% undervalued\n\nForward PE = $45 / ($5.00 x 1.05) = $45 / $5.25 = 8.57\nPayback period = ln(9) / ln(1.05) = 45.0 years at current growth
Result: PE: 9.0 | 25% below industry fair value of $60 | Earnings yield: 11.11%
Frequently Asked Questions
What is the price-to-earnings ratio and why does it matter?
The price-to-earnings (P/E) ratio is one of the most widely used valuation metrics in stock analysis, calculated by dividing a company stock price by its earnings per share. It tells you how much investors are willing to pay for each dollar of earnings, essentially measuring the market expectations for a company future growth and profitability. A PE of 20 means investors are paying $20 for every $1 of current annual earnings. The PE ratio matters because it provides a standardized way to compare valuations across different companies, industries, and time periods. Without relative metrics like PE, it would be nearly impossible to determine whether a $500 stock is expensive or a $5 stock is cheap, as absolute price alone tells you nothing about value.
What is considered a good PE ratio for a stock?
There is no universally good PE ratio because appropriate valuations vary significantly by industry, growth stage, and market conditions. Historically, the S&P 500 average PE has been around 15-17, so stocks trading below this range are often considered value opportunities while those above are considered growth premiums. Technology and high-growth companies routinely trade at PEs of 25-50 or higher because investors expect rapid future earnings growth. Utility companies, banks, and mature industrials typically trade at PEs of 10-18 due to slower growth. A PE below 10 might signal deep value or serious problems with the company. The key principle is that a high PE is not automatically bad nor a low PE automatically good. Context matters enormously, and PE should always be evaluated alongside growth rates, industry norms, and competitive positioning.
What is the PEG ratio and how does it improve on PE?
The PEG (Price/Earnings-to-Growth) ratio addresses the major limitation of the PE ratio by incorporating expected earnings growth. It is calculated by dividing the PE ratio by the annual earnings growth rate percentage. A PEG of 1.0 is generally considered fair value, meaning the PE ratio equals the growth rate. A PEG below 1.0 suggests the stock may be undervalued relative to its growth, while a PEG above 1.0 suggests potential overvaluation. For example, a company with a PE of 30 and 30% growth has a PEG of 1.0, while a company with a PE of 15 and 5% growth has a PEG of 3.0. Despite the second company having a lower PE, the PEG ratio reveals it is actually more expensive relative to its growth prospects. Peter Lynch popularized this metric in his investment approach.
Can PE ratio predict stock market returns?
Research shows that aggregate market PE ratios have moderate predictive power for long-term (10+ year) returns but virtually no predictive power for short-term returns. The Shiller CAPE ratio (cyclically adjusted PE using 10-year average earnings) has historically shown an inverse relationship with subsequent 10-year returns. When the CAPE ratio is above 30, subsequent 10-year returns have historically averaged around 3-5% annually. When below 15, subsequent returns have averaged 10-12% annually. However, the timing is unreliable. Markets can remain overvalued or undervalued for years before reverting. The CAPE ratio signaled overvaluation for much of the 2015-2024 period, yet markets continued rising. PE-based valuation is best used as one input among many for setting return expectations rather than as a precise market timing tool.
Is my data stored or sent to a server?
No. All calculations run entirely in your browser using JavaScript. No data you enter is ever transmitted to any server or stored anywhere. Your inputs remain completely private.
What inputs do I need to use P/E Ratio Calculator accurately?
Each field is labelled with the required unit (metric or imperial). Gather your source values before starting — for example, a weight measurement in kilograms, a distance in metres, or a dollar amount — and enter them exactly as measured. The formula section on this page lists every variable and explains what each represents.
References
Reviewed by Sahil, Senior Finance & Tax Editor · Editorial policy