← Glossary · Financial ratios
P/E ratio (price-to-earnings)
How many years of profit you pay for a share: price divided by earnings per share.
The P/E ratio sets the share price against earnings per share. A P/E of 20 means you pay twenty times the annual profit.
A low P/E looks cheap, a high one expensive. But careful: growth companies often have high P/Es because future profits are expected, and a very low P/E can be a warning sign if the market expects profits to shrink. It is most useful compared with the sector and with the company's own history. With losses there is no meaningful P/E.