ATLASP/E ratio (price-to-earnings)
Investing glossary · Valuation and fundamentals
The share price divided by earnings per share: how much investors pay for each unit of yearly profit.
Definition
The price-to-earnings ratio, or P/E, divides a company's share price by its earnings per share over the last twelve months. A P/E of 20 means investors are paying 20 units of currency for each unit of yearly profit, or, turned around, that the company earns about 5% of its price each year.
A high P/E usually means investors expect fast growth; a low P/E can mean a bargain or a business in trouble. P/E only makes sense compared with something: the company's own history, its competitors, or the market. It is also undefined for companies with no profit, and it can be distorted by one-off gains or losses.
Formula
P/E = price per share ÷ earnings per share (EPS)
Price = current share price, EPS = earnings per share over the last 12 months.
Worked example
Microsoft (MSFT) trades at $534.57 with a P/E of 28.5. That implies earnings of about $18.77 per share over the last year: investors pay 28.5 units for each unit of yearly profit, or an earnings yield of about 3.5% of the price.
Compare that figure with other companies in the same industry, not with the whole market: software, banks and utilities have very different normal ranges.
How ATLAS uses it
ATLAS shows the P/E in the key numbers of every stock page and uses peer P/E-style multiples as one of the two inputs to its fair value. It is displayed only when the company has positive earnings.
Related in ATLAS: Financials →Browse all ATLAS tools →See it on a real stock
The example above uses these companies. Open their pages for the full numbers:
Frequently asked questions
What is a good P/E ratio?
There is no universal good number. Mature, slow-growing sectors often trade at lower P/Es than fast-growing ones. Compare a company with its own history and with similar companies.
Why is there no P/E for some stocks?
When a company has no positive earnings, dividing the price by a zero or negative number gives nothing meaningful, so the P/E is left out.
Related terms
Put the idea to work on your own stocks
Open any company in ATLAS to see its fair value, its odds of rising and its risk numbers side by side.
Try ATLAS →Not investment advice. ATLAS estimates are produced by statistical models from public data; they can be wrong and past performance does not predict future results. Consider your own situation before investing. Disclaimer