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
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.
Is P/E Ratio Calculator free to use?
Yes, completely free with no sign-up required. All calculators on NovaCalculator are free to use without registration, subscription, or payment.