What is the P/E Ratio?
Price-to-Earnings ratio explained — how to use it to judge whether a stock is cheap or expensive.
The formula
P/E Ratio = Share Price ÷ Earnings Per Share (EPS)
If a stock trades at $100 and earned $5 per share last year, its P/E is 20. You are paying $20 for each $1 of annual earnings.
What the number means
- Low P/E (under 15) — cheap relative to earnings. May be a value opportunity — or a sign the market expects earnings to fall.
- Average P/E (15–25) — reasonable for stable, established companies.
- High P/E (above 30) — expensive on an earnings basis. Usually means the market expects strong future growth. Common in tech stocks.
- Negative P/E — the company is losing money (no earnings yet). Common in early-stage growth companies.
Trailing vs forward P/E
Trailing P/E uses last year's actual earnings. Forward P/E uses analyst estimates of next year's earnings. Forward P/E is more useful for growth companies where the past doesn't reflect the future.
The catch
P/E ratios must be compared within sectors. A P/E of 30 is high for a utility company but reasonable for a software company. TradeMind AI compares P/E to sector averages, not just absolute values, when assessing fundamental score.
See it in action
Every TradeMind AI signal shows confidence score, entry, stop, target, and R-multiple — all explained with tooltip hints when you hover the term.