P/E Ratio (Price-to-Earnings)
The Price-to-Earnings (P/E) ratio is a relative valuation metric that compares a company's current share price to its earnings per share. It indicates how much investors are willing to pay per dollar of earnings.
Formula
Example
A stock trading at $150 with EPS of $6 has a P/E ratio of 25x. This means investors are paying $25 for every $1 of earnings. The S&P 500 historical average P/E is approximately 15-17x.
Why It Matters
P/E is the most commonly used stock valuation metric due to its simplicity. However, it has significant limitations: it ignores debt levels, capital expenditures, and growth rates. DCF analysis provides a more comprehensive stock valuation.
How MiniValuator Uses P/E Ratio (Price-to-Earnings)
MiniValuator runs a P/E-based valuation alongside its DCF, not just as context. For some industries the multiple fits better than a cash-flow model: health insurers, for instance, are judged on a forward P/E because that is how the market actually prices them. Our comparison page explains when each method fits.
See It in Action
- How the PE model estimates fair value
- Financial Services sector fair value analysis
- Energy sector fair value analysis
Related Terms
- Earnings Per Share (EPS) — Earnings Per Share (EPS) is a company's net income divided by its weighted average number of outstan...
- Intrinsic Value — Intrinsic value is the estimated true worth of an asset based on its fundamental economic characteri...
- Enterprise Value (EV) — Enterprise Value (EV) represents the total value of a company to all capital providers (equity holde...
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