Glossary / Fundamentals

Price-to-earnings ratio (P/E)

Also called: P/E ratio · earnings multiple · PE

The price-to-earnings ratio is a company's share price divided by its earnings per share. It expresses how much is being paid per unit of reported annual earnings, and is the most widely quoted of the earnings multiples.

How it is measured

How is price-to-earnings ratio measured?

Divide the current share price by earnings per share. The trailing version uses the last four reported quarters, which are facts. The forward version uses an analyst estimate of the next four, which is a projection and moves as estimates are revised. A company with negative earnings has no meaningful ratio, so the measurement simply does not exist for it.

Why it matters

Why does price-to-earnings ratio matter to a swing trader?

The multiple is a compact way to compare what is being paid for reported earnings across companies in the same business. Its limits are the important part: it is not comparable across sectors, because durable differences in growth rate, capital intensity and accounting treatment mean the ordinary range in one industry is unusual in another. It also says nothing about debt, since it prices equity alone.

In Tapeline

Does Tapeline use price-to-earnings ratio?

An earnings multiple is one of the five inputs to Tapeline's Fundamentals factor, placed on a common scale alongside margin, return on equity, and earnings and revenue growth.

Read what the Fundamentalsfactor measures →

Tapeline publishes the six factor names and the ordering of their weights. The numeric weights, the scoring equation and the band edges are not published.

Related

See this in the product

What the Fundamentals factor measures · The Fundamentals factor · Full methodology

Related terms

EPS growth
Earnings per share is net income divided by the number of shares outstanding, and EPS growth is the change in that figure between two reported periods.
Return on equity
Return on equity is net income divided by shareholders' equity, expressed as a rate.
Profit margin
Profit margin is profit expressed as a share of revenue.
Piotroski F-Score
The Piotroski F-Score is a nine-point checklist of accounting tests, each scored one point if the company passes and zero if it does not.

Back to the full glossary.

General information about market vocabulary, written to be descriptive rather than prescriptive. Not investment advice — see the risk disclosure.