1. What is the Price to Earnings Ratio?

The Price to Earnings (PE) ratio is a valuation metric that compares a company's stock price to its earnings per share (EPS). It helps investors assess whether a stock is overvalued or undervalued relative to its earnings.

2. How Does the Calculator Work?

The calculator uses the PE ratio formula:

Where:

• \( Stock Price \) — Current market price of the stock (in any currency)
• \( EPS \) — Earnings Per Share (in same currency as stock price)

Explanation: The PE ratio shows how much investors are willing to pay per unit of current earnings. A higher PE suggests higher growth expectations.

3. Importance of PE Ratio

Details: The PE ratio is one of the most widely used valuation metrics in stock analysis. It helps compare companies within the same industry and assess market expectations.

4. Using the Calculator

Tips: Enter the current stock price and the company's earnings per share (EPS) in the same currency. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good PE ratio?
A: There's no single "good" PE ratio. It varies by industry, growth prospects, and market conditions. Compare to industry averages.

Q2: What does a high PE ratio indicate?
A: A high PE may indicate that investors expect higher earnings growth in the future, or that the stock is overvalued.

Q3: What does a low PE ratio indicate?
A: A low PE may suggest the stock is undervalued, or that the company has poor growth prospects.

Q4: Should I use trailing or forward PE?
A: Trailing PE uses past earnings, forward PE uses estimated future earnings. Both have value - trailing is more concrete, forward considers growth.

Q5: Are there limitations to PE ratio?
A: Yes, PE doesn't account for debt levels, growth rates, or one-time earnings impacts. Use with other metrics.