A company earns €5 for every share. Its share costs €100. €100 ÷ €5 = 20: the price-to-earnings ratio, or P/E.
← The MachineWhat it is Why it matters The numbers The trap Where you see it In one lineNextDebt makes good years great, bad years worse
A P/E of 20 means buying 20 years of today's profit in one go. Paying more years for the same profit is a bigger bet that it keeps growing.
Two companies both earn €5 a share. One costs €50 (P/E 10), one costs €100 (P/E 20). If profit never changes, the cheaper one pays back its price in half the time.
A low P/E is not automatically cheap, and a high one is not automatically dear. A high P/E can be right if profit is about to grow a lot; a low one can be a warning that it won't.
Every stock page shows the P/E next to the price. Comparing it with similar companies, and with its own past, says more than the number on its own.
P/E is the years of today's profit you are paying for. Compare it, never read it alone.
Do it today
Look up the P/E of a company you like.
Episode done · saved to your path