What is the P/E Ratio?
The Price-to-Earnings ratio compares a company’s current stock price to its earnings per share (EPS). It tells you how much investors are willing to pay for each dollar of earnings.
A P/E of 15 means investors pay $15 for every $1 the company earns annually. Think of it as how many years of current earnings it would take to pay back your investment — assuming earnings stay constant.
Why it matters for investors
The P/E ratio is one of the most widely used valuation metrics because it quickly shows whether a stock is cheap or expensive relative to its earnings.
A low P/E can signal an undervalued stock — or a company with declining earnings. A high P/E can signal an overvalued stock — or a company with strong growth expectations. Context matters. A tech company with a P/E of 30 might be reasonably priced if it’s growing revenue at 40% per year, while a utility company at the same P/E could be wildly overpriced.
How Stock Analyzer scores it
| Score | P/E Range | What it means |
|---|---|---|
| A | 10 – 17 | Fair value range for most companies |
| B | 0 – 10 or 17 – 25 | Potentially undervalued or moderately priced |
| C | 25+ | High expectations priced in |
| E | Below 0 | Negative earnings (company is losing money) |
What to watch out for
A P/E ratio alone never tells the full story. Always consider it alongside growth metrics (like the PEG ratio), quality indicators (like ROIC), and the company’s sector average. A “good” P/E for a bank is different from a “good” P/E for a software company.