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P/E Ratio Calculator
Calculate stock fair value using the price-to-earnings ratio. Enter EPS and a target multiple to get fair value, margin of safety, PEG ratio, and earnings yield — with live data for any US-listed ticker.
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Enter EPS and a target P/E to see fair value
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How to use this P/E calculator
Find TTM EPS
Load a ticker to auto-fill EPS, or find it in the company's latest earnings release. Use trailing twelve months (TTM) — the sum of the last four quarters of diluted EPS. Avoid adjusted/non-GAAP EPS as your primary input unless you understand exactly what's being excluded.
Anchor to the sector median P/E
The sector median is your starting point, not the ceiling. Premium franchises with durable moats trade above sector median — think Apple or Visa. Commoditized businesses or those with elevated cyclicality deserve a discount. The scenario table shows fair value across the full sector range.
Check PEG before paying up
A high P/E is only justified if earnings are growing fast enough to close the gap. PEG = P/E ÷ growth rate. Peter Lynch's rule: PEG below 1.0 means you're not overpaying for growth. Above 2.0, you need strong conviction that earnings will accelerate to justify the multiple.
Compare earnings yield to bonds
Earnings yield = 1 / P/E. A stock with a P/E of 20 yields 5% on earnings vs a 10-year Treasury at ~4.5%. That's only a 0.5% equity risk premium — historically very thin. When bond yields are high, a low earnings yield makes stocks look expensive on a relative basis.
The P/E ratio explained
What does the P/E ratio actually measure?
The P/E ratio tells you how many years of current earnings you're paying for. A P/E of 20 means you're paying $20 for every $1 of annual earnings — at that rate, it takes 20 years to recoup the purchase price on today's profits alone. The market prices future earnings, not just today's, which is why growing companies deserve higher multiples.
Think of P/E as the market's growth bet made explicit. A 30× P/E on a company growing earnings at 25%/year isn't expensive — those earnings double roughly every three years. The same 30× on a company growing at 5% is a different story entirely. The multiple only makes sense in the context of the growth behind it.
What's a "normal" P/E?
The S&P 500 has averaged 15–17× on trailing earnings over the long run. The index currently trades near 22–24×, driven by technology and AI-exposed companies where earnings growth expectations are high. That's not a bubble signal on its own — it reflects where the earnings growth actually lives.
Sector medians matter more than the broad market average: technology 25–30×, healthcare 22–26×, consumer staples 18–22×, financials 12–15×, energy 10–14×. A 12× P/E tech stock and a 12× P/E energy stock are in completely different situations. Always compare against sector history, not the S&P.
PEG ratio: P/E adjusted for growth
Peter Lynch ran Fidelity's Magellan fund for 13 years and averaged 29% annual returns. His shortcut: divide P/E by the earnings growth rate. PEG of 1.0 = fairly valued. Below 1 = growth exceeds the multiple, potentially cheap. Above 2 = you're paying a steep premium for expected growth that may not materialize.
PEG has real limits. It breaks down for cyclicals, turnarounds, and companies whose earnings are manipulated through buybacks or accounting choices. Use it as one filter on high P/E stocks, not as a buy/sell trigger on its own.
Earnings yield: comparing stocks to bonds
Flip the P/E upside down: 1 ÷ P/E = earnings yield. A stock with a P/E of 20 yields 5% on earnings. With the 10-year Treasury at 4.5%, that's only a 0.5% equity risk premium — far below the 3–5% that investors have historically demanded for taking on stock risk. Thin spreads like that mean equities are priced to perfection.
This is why rising interest rates compress P/E multiples. When the risk-free rate moves from 2% to 5%, a 5% earnings yield goes from looking attractive to looking roughly equivalent to a Treasury. The market reprices the stock down until the earnings yield rises enough to restore the premium.
When P/E breaks down
P/E is useless when earnings are negative, near zero, or distorted by one-time items. Cyclical companies are the most dangerous case: a steel or energy company at peak earnings shows a deceptively low P/E — say 8× — just before earnings collapse. That 8× isn't cheap, it's a peak-cycle trap. The right move is to normalize to mid-cycle earnings before applying any multiple.
Better tools for edge cases: EV/EBITDA for capital-heavy businesses, P/FCF when net income diverges from cash flow, EV/Revenue for pre-profit companies, P/B for banks and insurers. Use two or three methods. If they disagree, understand why before drawing a conclusion.
P/E vs. DCF: use both
P/E is relative — it tells you how a stock is priced compared to its sector and history. DCF is absolute — it tells you what the business is worth based on its own cash flows, independent of what the market currently believes. They answer different questions.
Start with P/E to screen: is this stock cheap or expensive relative to peers? Then use DCF to stress-test: at what growth and discount rate assumptions does the stock earn a margin of safety? When both point the same direction, the conviction is higher. When they diverge, dig into why — that gap is usually where the insight is.
Frequently asked questions
What is the P/E ratio formula?
P/E = Stock Price ÷ EPS. Fair Value = EPS × P/E multiple. If a company earns $5/share and you apply a 20× multiple, fair value = $100/share. Use TTM (trailing twelve months) EPS for backward-looking analysis; forward EPS for growth-adjusted valuation.
What is a good P/E ratio for a stock?
There's no universal answer — it depends entirely on sector and growth rate. Technology stocks often trade at 25–35×. Energy and financials at 10–15×. Compare any P/E to the company's own history and sector peers, not to the broad market.
How is PEG ratio calculated?
PEG = P/E ÷ annual EPS growth rate. A company with a 25 P/E growing earnings at 25% per year has a PEG of 1.0 — Peter Lynch's definition of fairly priced. PEG below 1 suggests potential undervaluation; above 2 suggests you're paying a premium for expected growth.
What is earnings yield?
Earnings yield = 1 / P/E, expressed as a percentage. A P/E of 20 implies a 5% earnings yield. This is directly comparable to bond yields — subtract the 10-year Treasury yield to get the equity risk premium. Historically, investors demand 3–5% above the risk-free rate for taking equity risk.
What is the difference between trailing and forward P/E?
Trailing P/E uses the last 12 months of actual EPS. Forward P/E uses analyst estimates for the next 12 months. Trailing is based on real numbers; forward bakes in growth expectations. Use trailing for a conservative anchor and forward to understand market expectations.
Why is a low P/E not always a buy signal?
Low P/E can mean: (1) earnings are at a cyclical peak and will fall; (2) the business is structurally declining; (3) the market knows something you don't (earnings risk). Value traps — stocks that look cheap but keep getting cheaper — often have low P/Es for good reasons. Always ask why the P/E is low before treating it as an opportunity.
Can I use P/E for any stock?
No. P/E is unreliable for: loss-making companies (negative EPS makes the ratio meaningless), highly cyclical businesses at peak earnings, and financial companies where book value matters more. For these, use EV/EBITDA, P/B, or EV/Revenue instead.
What is margin of safety in P/E valuation?
Margin of safety = (Fair Value − Current Price) / Fair Value. If fair value is $100 and the stock trades at $80, the margin of safety is 20%. This buffer protects against errors in your EPS estimate or multiple assumption. Most value investors require at least 20% margin of safety before buying.