P/E Ratio Calculator
P/E Ratio and PEG Calculator
A share’s price-to-earnings ratio from its price and trailing earnings per share, its earnings yield, and the PEG ratio, which sets the P/E against expected earnings growth.
P/E and PEG
A share at $1,500, trailing EPS $60, earnings expected to grow 15% a year
P/E, earnings yield and PEG
- EPS
- earnings per share over the last 12 months (trailing). A forward P/E uses next year’s expected EPS instead
- growth
- expected yearly growth in EPS, as a percentage number: 15% growth is 15, not 0.15
Worked example
A share at $1,500, trailing EPS $60, earnings expected to grow 15% a year
P/E = 1,500 ÷ 60 = 25.0
Earnings yield = 60 ÷ 1,500 × 100 = 4.00%
PEG = 25 ÷ 15 = 1.67
If EPS grows 15% to $69, the P/E on next year's earnings is 1,500 ÷ 69 = 21.7
Why there is no universal “good” P/E
The P/E says how much the market is paying for a year of a company’s earnings. A P/E of 25 means the price is 25 times the last twelve months’ earnings per share; turned upside down, the company earned 4% of its price, which is the earnings yield. Whether 25 is high or low depends on how fast the earnings are expected to grow, how risky they are, how much of them is paid out, and on interest rates. Markets, sectors and decades have very different typical P/Es, so a single number that is “cheap” for every share does not exist. Compare a P/E with the company’s own history and with similar companies, then look for the reason it differs.
Check what the EPS is. A trailing P/E uses reported earnings; a forward P/E uses a forecast. Indian companies report standalone and consolidated results, which can give very different EPS. One-off gains or write-offs distort a single year. When EPS is negative the P/E is not meaningful, and the page says so rather than calling the share cheap.
The PEG ratio divides the P/E by the expected growth rate in percent. It was first described by Mario Farina in 1969 and made popular by Peter Lynch in One Up on Wall Street (1989), who wrote that the P/E of a fairly priced company will equal its growth rate — a PEG of about 1. That is Lynch’s rule of thumb, not a law: the PEG treats growth as if it were certain and lasting, and ignores risk, debt, the dividend and interest rates. Aswath Damodaran’s valuation work shows why the same PEG can be fair for one company and not another. In the example the P/E is 25 and the growth estimate 15%, so the PEG is 1.67; change the growth estimate and watch how much the PEG moves. To see what a holding has actually returned, use the CAGR calculator; for income from a share, the dividend yield calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How do you calculate the P/E ratio?
Share price ÷ earnings per share. A $1,500 share with EPS of $60 has a P/E of 25.
What is a good P/E ratio?
There is no single good P/E. It depends on growth, risk, payout and interest rates, and typical levels differ by market, sector and period. Compare a company with its own history and with similar companies.
What is the PEG ratio?
The P/E divided by expected yearly EPS growth in percent. A P/E of 25 with 15% growth is a PEG of 1.67. Peter Lynch popularised the rule of thumb that a fairly priced company’s P/E equals its growth rate (a PEG of 1); Mario Farina described the ratio first, in 1969.
What does a negative P/E mean?
That the company made a loss over the last twelve months. The P/E is then not meaningful — it does not mean the share is cheap — and investors look at other measures instead.
Related calculators
References
- Farina MV. A Beginner’s Guide to Successful Investing in the Stock Market. 1969. The first published description of the P/E-to-growth (PEG) ratio.
- Lynch P, Rothchild J. One Up on Wall Street. New York: Simon & Schuster; 1989. “The P/E ratio of any company that’s fairly priced will equal its growth rate.”
- Damodaran A. Investment Valuation. Wiley. Price–earnings and PEG ratios: what drives them (growth, risk and payout), and why a PEG of 1 is not a universal fair value.
- Bodie Z, Kane A, Marcus AJ. Investments. McGraw-Hill. Real and nominal rates of return (the Fisher relation), after-tax returns, dividend yield and total return, and price–earnings ratios.