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Price-to-earnings ratio (P/E)

The price-to-earnings ratio divides a stock's current price by its earnings per share.

By Betta Signals Research Desk · Reviewed October 24, 2026

Plain-English definition: The price-to-earnings ratio divides a stock's current price by its earnings per share.[1]

How the term is used

P/E describes how much investors are paying for each dollar of a company's earnings. It is commonly used to compare companies in the same industry, where typical ratios may be more comparable.[2]

What to check before relying on it

State the price date, EPS period, basic or diluted basis, and whether earnings are GAAP or adjusted. Compare businesses with similar economics rather than treating one market-wide cutoff as universal.

Example

A $50 stock with $5 of trailing diluted EPS has a trailing P/E of 10, but that number changes if earnings include an unusual gain.

Earnings per share (EPS)StockMarket capitalization

Research last reviewed: October 24, 2026. This definition is educational and does not evaluate a particular security.

Sources

  1. Investor.gov: Price-earnings (P/E) Ratio — share price compared with earnings per share. Accessed October 24, 2026.
  2. FINRA: Evaluating Stocks — earnings measures, price-to-earnings ratios, valuation comparisons, and their limitations. Accessed October 24, 2026.