What is the P/E ratio (Price-to-Earnings), explained simply?
The P/E ratio tells you how many rupees you pay for every ₹1 of a company’s annual profit. A quick gauge of whether a stock looks cheap or expensive.
The price-to-earnings (P/E) ratio is the most widely used valuation number. It compares a company’s share price to its earnings per share (profit divided by number of shares). In plain terms: how much are you paying for each ₹1 the company earns in a year?
A high P/E means investors are paying a lot for current earnings — usually because they expect strong future growth (or because the stock is simply expensive). A low P/E can mean a bargain, or it can mean the market expects trouble ahead. P/E never works in isolation.
The golden rule is to compare like with like: a company’s P/E against its own history and against peers in the same industry. A 60x P/E is normal for a fast-growing IT firm but alarming for a slow-growing utility. Always ask why the number is high or low before judging it.
Formula
P/E = Share price ÷ Earnings per share (EPS)
Example
If a stock trades at ₹500 and earned ₹25 per share last year, its P/E is 20 — you pay ₹20 for every ₹1 of annual profit. A peer at ₹300 earning ₹30 has a P/E of 10, and looks cheaper on this one measure.
See it on real companies
Browse live financials and decoded filings, or just ask in plain English.
Common questions
What is a good P/E ratio?
There is no universal "good" number — it depends entirely on the industry and growth rate. Compare a stock’s P/E to its own history and to direct competitors rather than to the whole market.
Is a low P/E always better?
No. A low P/E can signal a genuine bargain or a company in decline (a "value trap"). Check why earnings are cheap before assuming it’s an opportunity.