P/E Ratio
The price-to-earnings ratio compares a company's share price to its earnings per share.
The trailing P/E ratio divides the current share price by the earnings per share generated over the last twelve months. It is one of the most widely used valuation shorthand figures because it expresses how many years of current earnings you would pay for one share at today's price.
A high P/E can signal that investors expect strong earnings growth, or that a stock is expensive relative to its profits. A low P/E can indicate a bargain, a mature slow-growth business, or a company the market believes faces problems. P/E ratios are most meaningful when compared within the same sector, because typical multiples vary widely between industries.
P/E is undefined for loss-making companies, and one-off accounting items can distort it in a single year.
Example
A company priced at £50 per share that earned £2.50 per share over the last year trades on a trailing P/E of 20.
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