Equity · Core
Price-to-Earnings Ratio
The P/E ratio is price per share divided by earnings per share — how many years of current earnings the market is paying for.
Definition
Trailing P/E uses last-twelve-months EPS; forward uses consensus next-year EPS. A high P/E can be growth, low risk, or a cyclical earnings trough. Negative earnings make the ratio undefined, not cheap.
Why it matters
It is the default equity multiple and the easiest one to lie with: one-off earnings, buybacks, and cycle peaks all move it.
Case
A cyclicals print peak EPS into a boom and look like 8×. Mid-cycle they are 16× on half the earnings. The ‘cheap’ tape was the cycle.
How to read it
State trailing vs forward, GAAP vs adjusted, and where you are in the cycle. Pair with EV/EBIT when leverage or cash differs.
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