Metric · Valuation

What Is a Good P/E Ratio?

Q: What does a very low P/E mean?

A very low P/E can signal a bargain, or a warning sign that the market is pricing in declining profits or a structural problem. Always view it alongside leverage, margins and growth.

Q: What is the difference between the current P/E and the 5-year average P/E?

The current P/E uses the latest annual profit; the 5-year P/E smooths out earnings swings over several years and gives a more realistic picture for cyclical companies.

The price-earnings ratio (P/E) relates a stock's current price to its earnings per share. It shows how many years of profit an investor is currently paying for. It's one of the most widely used valuation metrics.

Updated 20266 min read

Formula

P/E = Share price ÷ Earnings per share (EPS)

< 15Attractive valuation

15–25Moderate valuation

> 25High valuation

Guideline values, industry-dependent, illustrative

The formula in detail

The components of the formula at a glance.

Numerator

Share price

The stock's current market price.

Denominator

Earnings per share (EPS)

Net income divided by the number of shares outstanding.

Calculator

Enter your own figures and see the value instantly.

Share price (€)Earnings per share / EPS (€)

Result P/E

Moderate valuation

15.0

A low P/E (roughly below 15) can signal an attractive valuation, or that the market expects lower future growth.

A high P/E (roughly above 25) usually prices in strong growth expectations; if they fail to materialize, steeper price corrections can follow.

P/E only makes sense to compare within the same industry: tech companies structurally trade at higher P/Es than, say, utilities or banks.

Negative earnings make the P/E meaningless (the ratio turns negative or undefined). In that case, look at other metrics such as price-to-sales instead.

Used in these strategies

Magic Formula: Value + QualityGood companies at cheap prices: two factors, one score.Dividend Quality: 4 FactorsFour factors against the dividend trap: continuity, coverage, yield, growth.

Frequently asked questions

What is a good P/E ratio?

There is no universal threshold. A P/E between 10 and 20 is considered moderate in many industries, but should always be compared against the industry average and expected growth.

What does a very low P/E mean?

What is the difference between the current P/E and the 5-year average P/E?

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Not investment advice. This explanation is for informational purposes only and does not constitute a recommendation to buy or sell securities.

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