What Is Price To Earnings (P/E)?

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

Price to Earnings (P/E) is a financial metric which shows the ratio of a firm's current share price to its earnings per share. This is an extremely common multiple used to evaluate whether a company is under or overpriced. Usually the higher the P/E ratio, the more overvalued the firm is.

The calculation of P/E is:

  • Market Value Per Share / Earnings Per Share

For example, if a share is currently trading at $50 and EPS are $2 per share, the P/E ratio is 25 ($50 / $2).

The P/E of different firms cannot really be compared unless they are in the same sector as the typically P/E values will vary between sectors. Technology firms for example usually have high P/E ratios.

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Patrick Curtis

Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.