What is the difference between P/E ratio and PEG ratio?

The P/E ratio divides the stock price by earnings per share and tells you how much investors pay per dollar of earnings. The PEG ratio adjusts the P/E by dividing it by the expected earnings growth rate, making it more useful for comparing growth stocks. A PEG below 1 is generally considered attractive, while a PEG above 2 suggests the stock may be expensive relative to its growth prospects.

What is the difference between trailing and forward P/E?

Trailing P/E uses actual earnings from the past 12 months (TTM — trailing twelve months). Forward P/E uses analyst estimates for the next 12 months. Trailing P/E is based on known data but may be stale; forward P/E reflects growth expectations but depends on the accuracy of forecasts. This calculator uses trailing EPS by default.

What are the limitations of the P/E ratio?

The P/E ratio has several limitations: it is meaningless for companies with negative earnings; it can be distorted by one-time items that inflate or deflate reported EPS; it does not account for debt levels (unlike EV/EBITDA); and it varies widely across sectors, making cross-industry comparisons misleading. Always use P/E alongside other valuation metrics like Price-to-Book, EV/EBITDA, and free cash flow yield.

What is the Graham Number?

The Graham Number is a value investing formula created by Benjamin Graham: √(22.5 × EPS × Book Value Per Share). It estimates the maximum price a value investor should pay for a stock. The 22.5 factor comes from Graham's rule that P/E × P/B should not exceed 22.5 (i.e., P/E ≤ 15 and P/B ≤ 1.5). A stock trading below its Graham Number may be considered undervalued by classic value investing standards.

P/E Ratio Calculator — Stock Valuation, PEG Ratio & Graham Number

Q: What is a good P/E ratio?

There is no single 'good' P/E ratio — it depends on the industry, growth rate, and market cycle. Historically the S&P 500 has averaged a P/E of around 15–20. Growth sectors like technology often trade at 25–40× earnings, while value sectors like utilities or financials may trade at 10–15×. Compare a stock's P/E to its industry average and its own historical range for the most useful context.

Price Change	Stock Price	P/E Ratio	Verdict
Switch to Calculator tab first to load data.

1

Enter Share Price

Input the current market price per share. Use the most recent intraday price for trailing-twelve-months P/E or the close for end-of-period analysis.

2

Enter Earnings Per Share (EPS)

Input EPS from the company's most recent four quarters (trailing TTM) or analyst-consensus forward EPS estimate, depending on which P/E variant you need.

3

Choose TTM or Forward

Trailing TTM uses past 12 months of reported earnings; forward uses next-12-month estimates. Compare the two to spot expected earnings growth or decline.

4

Compare Against Benchmarks

Cross-reference against the sector median, the S&P 500 average (historically 15–20), and the company's own 5-year average P/E to gauge relative valuation.

Price-to-Earnings Ratio

P/E = Share Price / Earnings Per Share

Measures how much investors pay for each $1 of earnings. A P/E of 25 means investors pay $25 today for $1 of annual earnings — implicitly a 4% earnings yield.

PEG Ratio (Growth-Adjusted)

PEG = P/E / Annual Earnings Growth %

Normalizes P/E for expected growth. PEG = 1.0 is fair value; below 1.0 may signal undervaluation; above 1.5 may signal overvaluation relative to growth rate.

Editorial accountability

Author: Calculover Editorial Team - Investing education

Owner: Calculover Investing & Retirement Desk - Equity-valuation methodology owner

Reviewer: Calculover Editorial Review - Source and limitation review

Last reviewed: 2026-05-14

Last verified: 2026-05-14

Data effective: 2026-05-14

Methodology

P/E Ratio Calculator computes price-to-earnings as the user-supplied share price divided by earnings per share. Supports trailing-twelve-months and forward variants. Optional PEG ratio is derived from P/E divided by user-entered annual earnings growth rate.

Assumption: P/E Ratio Calculator relies on the user-entered share price, EPS, and growth-rate values and does not independently verify quotes or financial statements.

Assumption: EPS reflects accounting choices including depreciation, stock-based compensation, and one-time charges that may differ across companies.

Assumption: Forward P/E inputs depend on analyst consensus accuracy, which systematically over-forecasts earnings by 5–10% historically.

Limitations & guidance

P/E Ratio Calculator does not adjust for capital structure (debt), one-time accounting items, or industry conventions.

P/E is not meaningful for unprofitable companies (negative EPS) or for stocks trading near cyclical earnings peaks where TTM EPS overstates run-rate earnings.

Professional guidance: P/E Ratio Calculator is for investing education only and is not investment, tax, or financial advice. Valuation decisions should be reviewed alongside complete financial analysis with a qualified financial professional.

Primary sources

Beginners' Guide to Financial Statements - U.S. Securities and Exchange Commission

Shiller PE Ratio for the S&P 500 - Yale University / Robert Shiller

Investing Basics - FINRA

P/E Ratio Price-to-Earnings ratio. Share price divided by earnings per share. The single most-quoted equity valuation metric, used to compare stocks across industries and over time.

TTM P/E Trailing Twelve Months P/E. Uses the most recent four quarters of reported earnings. Backward-looking but based on actual results rather than forecasts.

Forward P/E Uses analyst-consensus EPS estimates for the next twelve months. Forward-looking but depends on the accuracy of analyst forecasts, which systematically overstate earnings.

Earnings Yield The inverse of P/E: 1/P/E, expressed as a percentage. A P/E of 20 implies a 5% earnings yield — useful for comparing equity expected returns against bond yields.

PEG Ratio P/E divided by annual earnings growth rate. Adjusts P/E for the growth investors are paying for. A PEG of 1.0 is often considered fair value by growth-style investors.

Shiller CAPE Cyclically-Adjusted P/E using 10-year average inflation-adjusted earnings. Developed by Robert Shiller to smooth out business-cycle distortions in standard P/E.

🏢

Mature Blue-Chip Stock

Procter & Gamble at fair value

Share Price $155 TTM EPS $6.45 TTM P/E 24.0 Forward EPS $6.95 Forward P/E 22.3

P/E of 24 is above the long-run S&P 500 average of 15–20 but in line with P&G's 5-year history. The forward P/E drop to 22.3 implies analysts expect ~8% EPS growth — reasonable for a consumer staple with pricing power.

🚀

Growth Stock

Software company priced for growth

Share Price $220 TTM EPS $2.10 TTM P/E 104.8 Expected Growth 35%/yr PEG Ratio 3.0

A 105 P/E implies extraordinary growth expectations. The PEG of 3.0 (above the 1.0 fair-value threshold) suggests the stock is priced for perfect execution. Any earnings miss could trigger a 30–50% drawdown.

⚠️

Cyclical at Peak Earnings

Steel company near cyclical peak

Share Price $60 TTM EPS $12.00 TTM P/E 5.0 5-Year Avg EPS $4.50 CAPE-style P/E 13.3

A P/E of 5 looks deeply undervalued — until you notice TTM EPS reflects a cyclical peak. The cyclically-adjusted P/E of 13.3 is closer to fair value. Cheap-looking cyclicals often signal peak earnings rather than bargain pricing.

The price-to-earnings ratio is the most widely-cited equity valuation metric, but it is also the most widely-misused. Understanding what P/E does and does not measure — and when to use TTM, forward, or cyclically-adjusted variants — separates competent fundamental analysis from cargo-cult metric-quoting.

What P/E Actually Means

A P/E ratio of 20 means investors are paying $20 today for every $1 of annual earnings the company currently produces. Stated as an earnings yield, that's 5% (1/20). For a company growing earnings at 0%, the earnings yield would equal the long-run total return — but most companies grow earnings, so P/E should be interpreted alongside an expected growth rate. The S&P 500 long-run average P/E sits between 15 and 20; readings above 25 historically precede below-average future returns, while readings below 12 typically precede above-average returns. The ratio is most meaningful for profitable, mature companies; for unprofitable or cyclical businesses, P/E either does not exist (negative earnings) or wildly misleads.

TTM vs. Forward vs. Shiller CAPE

TTM P/E uses the most recent four quarters of reported earnings — backward-looking but factual. Forward P/E uses analyst consensus for the next 12 months — forward-looking but biased upward (sell-side analysts consistently over-forecast earnings by 5–10%). Shiller CAPE uses a 10-year average of inflation-adjusted earnings, smoothing out business-cycle effects. For a mature non-cyclical stock, TTM is usually fine. For cyclicals (steel, autos, semiconductors, banks), Shiller CAPE or a 5-year average is essential because TTM near peaks looks deceptively cheap. For growth stocks, forward P/E is meaningful only if you discount analyst estimates by 5–10%. Use all three in combination — divergence between them is itself a signal.

The PEG Ratio — P/E Adjusted for Growth

A high P/E is not automatically expensive — it depends on growth. Peter Lynch popularized the PEG ratio (P/E divided by annual earnings growth %) to normalize this. A PEG of 1.0 is often considered fair value: a company growing earnings at 20% deserves a P/E of 20. PEG below 1.0 suggests undervaluation relative to growth; PEG above 1.5 suggests overvaluation. The framework has limits — it assumes growth persists, ignores leverage and capital intensity, and breaks down for negative or very high growth rates. For most growth stocks, PEG should be calculated against the next-3-to-5-year consensus growth rate, not the most recent single year (which may be distorted by one-time factors).

Limitations and Common Mistakes

P/E ignores debt entirely — two companies with identical earnings but different leverage have the same P/E despite very different risk profiles. P/E does not adjust for accounting choices (depreciation methods, stock-based compensation treatment, one-time charges), which materially affect reported EPS. P/E breaks down for negative-earnings companies, where the ratio is undefined or negative. For cyclical businesses, P/E near peak earnings looks cheap precisely when the cycle is about to turn — the classic value trap. Always pair P/E with at least two other metrics: EV/EBITDA (which accounts for capital structure), Price/Free-Cash-Flow (which strips accounting noise), and an industry-specific metric (Price/Book for banks, EV/Sales for unprofitable growth, FFO multiples for REITs).

What is a good P/E ratio?+

There is no universal 'good' P/E — it depends on industry, growth rate, and macro conditions. The S&P 500 long-run average is 15–20. Mature low-growth sectors (utilities, consumer staples) typically trade at 18–25; high-growth sectors (software, biotech) at 30–60+.

Should I use TTM or forward P/E?+

TTM uses reported earnings — factual but backward-looking. Forward uses analyst forecasts — forward-looking but biased upward (analysts systematically over-forecast). For most analysis, use both. A large gap (forward much lower than TTM) implies expected EPS growth; the opposite implies expected decline.

What does a negative P/E mean?+

A negative P/E indicates the company is unprofitable on a trailing basis (losses). Mathematically the ratio is undefined as a valuation metric. For unprofitable companies, use Price/Sales, EV/Sales, EV/EBITDA, or cash-flow-based measures instead.

What is the PEG ratio?+

PEG = P/E divided by annual earnings growth rate. Adjusts P/E for the growth investors are paying for. A PEG of 1.0 is often considered fair value (P/E of 20 deserved at 20% growth). Below 1.0 suggests undervaluation; above 1.5 suggests overvaluation.

How does P/E compare to Shiller CAPE?+

Standard P/E uses one year of earnings; Shiller CAPE uses 10-year inflation-adjusted earnings to smooth business cycles. CAPE is more robust for cyclicals and aggregate index valuation. The S&P 500 long-run CAPE average is ~17; current readings above 30 historically preceded below-average 10-year returns.

Why is a low P/E sometimes a warning rather than a bargain?+

Cyclical companies hit their lowest P/E ratios at peak earnings, just before margins compress and earnings collapse. This is the classic value trap — the stock looks cheap on TTM P/E exactly when investors should be most cautious.

P/E Ratio Calculator

Price Sensitivity Analysis

Scenario Table

How to Use the P/E Ratio Calculator

Key Terms

Frequently Asked Questions

How to Use This Calculator

Enter Share Price

Enter Earnings Per Share (EPS)

Choose TTM or Forward

Compare Against Benchmarks

Formula & Methodology

Trust, Methodology & Sources

Key Terms Explained

Real-World Examples

Mature Blue-Chip Stock

Growth Stock

Cyclical at Peak Earnings

Reading the P/E Ratio Correctly

What P/E Actually Means

TTM vs. Forward vs. Shiller CAPE

The PEG Ratio — P/E Adjusted for Growth

Limitations and Common Mistakes

Frequently Asked Questions

P/E Ratio Calculator

Price Sensitivity Analysis

Scenario Table

How to Use the P/E Ratio Calculator

Key Terms

Frequently Asked Questions

How to Use This Calculator

Enter Share Price

Enter Earnings Per Share (EPS)

Choose TTM or Forward

Compare Against Benchmarks

Formula & Methodology

Trust, Methodology & Sources

Key Terms Explained

Real-World Examples

Reading the P/E Ratio Correctly

What P/E Actually Means

TTM vs. Forward vs. Shiller CAPE

The PEG Ratio — P/E Adjusted for Growth

Limitations and Common Mistakes

Frequently Asked Questions

Keep Exploring

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