The P/E ratio (Price-to-Earnings ratio) is a simple but powerful metric to evaluate if a stock is overvalued, undervalued, or fairly priced compared to its earnings.
Here’s how you can check
and analyze it step-by-step:
1. Understand the Formula
- Price – The current trading price of one share.
- EPS – Earnings Per Share from the last 12 months
(TTM = trailing twelve months), or projected earnings for the next year
(Forward P/E).
2. Ways to Check P/E Ratio
a) Using Financial Websites
You can find the P/E ratio instantly by looking up
the stock on trusted financial platforms:
- Yahoo
Finance → Search the stock symbol → Check the
"Statistics" or "Summary" tab.
- Google
Finance → Type stock ticker (e.g., AAPL for Apple) → P/E ratio is shown on
the overview page.
- TradingView → Shows both trailing and forward P/E.
- MarketWatch or Morningstar for detailed financial data.
b) On Brokerage Platforms
If you use brokers like Charles Schwab, Fidelity, Robinhood, or Interactive
Brokers, you can view the P/E ratio in the stock’s overview or
fundamental analysis tab.
c) Manual Calculation
If you want to calculate manually:
- Get the current stock price — from your
brokerage or Google Finance.
- Get the EPS (Earnings Per Share) — from the
company’s annual report, quarterly earnings, or sites like Yahoo Finance.
- Apply the formula:
3. Types of P/E Ratios
|
Type |
Formula |
When to Use |
|
Trailing P/E |
Price ÷ EPS (last 12 months) |
Shows the actual past performance. |
|
Forward P/E |
Price ÷ Expected EPS (next 12 months) |
Useful for growth and projections. |
4. How to Interpret P/E
- High
P/E → The stock is expensive relative to earnings.
Could mean growth
expectations or overvaluation.
- Low
P/E → The stock is cheaper. Could mean undervalued or
that the company faces problems.
- Compare to:
- The company's historical P/E
- The industry average
- The market average (S&P 500 average is
around 20–25
in recent years).
5. Example
Let’s say Apple (AAPL):
- Price = $180
- EPS = $6
This means investors are paying $30 for every $1 of earnings
Apple generated in the past year.
6. Cautions
- A very high P/E in a growth stock might be justified if
earnings are expected to grow fast.
- Negative
earnings → P/E ratio
won’t be meaningful.
- Always use multiple metrics (like PEG ratio, P/B
ratio, and cash flow analysis) for better insight.
Would you like me to show you how to compare P/E ratios between two companies for a clearer analysis?