P/E (price to earnings)
Share price over earnings per share: how many years of profit the market is paying for the company.
Formula
P/E = \frac{\text{Share price}}{\text{Earnings per share}}Market capitalisation over trailing twelve-month net profit. Forecast earnings are never used — a forecast is not a fact.
How to read the number
A low P/E means either cheapness or an expectation that profit will fall. The market rarely misprices for free, and it is worth asking what it is afraid of.
When the metric lies
With a loss, P/E is undefined — a negative figure would be meaningless. For cyclical companies P/E bottoms at the peak of the cycle, precisely when the shares are most dangerous.
Where it is used
The metric is calculated across every security in the catalogue and appears on the instrument card, in the multiples table and in the screener.
Also known as: price to earnings, p/e, pe ratio