Learn the stock market › Key ratios › Lesson 1 of 7
What is a good P/E ratio?
How it is calculated
Divide the price by the earnings per share over the last 12 months. Apple: $342.37 / $8.98 = 38.1. So you pay 38.1 dollars for each dollar of earnings.
Work it out
P/E 38.1. You pay 38.1 dollars for each dollar of earnings.
P/E for the largest companies right now
Three of the companies are under 15 and ten are over 30, and all are in the S&P 500. The middle for technology companies is 37.5 (they are seven of the 20).
| Company | Sector | P/E | |
|---|---|---|---|
| JPMorgan Chase | Financials | 14.0 | |
| Berkshire Hathaway | Financials | 14.4 | |
| Alphabet | Telecoms | 14.9 | |
| Exxon Mobil | Energy | 17.1 | |
| Oracle | Technology | 18.2 | |
| Netflix | Telecoms | 18.3 | |
| Meta | Telecoms | 20.8 | |
| Amazon | Consumer goods | 21.0 | |
| Nvidia | Technology | 23.6 | |
| Microsoft | Technology | 27.7 | |
| Middle of the 20 companies | 30.9 | ||
| Mastercard | Financials | 34.2 | |
| Visa | Financials | 34.3 | |
| Broadcom | Technology | 37.5 | |
| Apple | Technology | 38.1 | |
| Eli Lilly | Healthcare | 43.9 | |
| Walmart | Staples | 46.3 | |
| Costco | Staples | 50.7 | |
| AMD | Technology | 95.9 | |
| Palantir | Technology | 112.9 | |
| Tesla | Consumer goods | 393.6 | |
Why the number can mislead you
Companies that own shares. Berkshire Hathaway has a P/E of 14.4. Since 2018 US accounting counts gains and losses on the shares a company holds as earnings, even when it has not sold them, so a good year on the market gives a low number and a bad year a high one. For such a company the price is more often compared with what it owns, as with net asset value.
Earnings that are high or low for a while. A one-off gain makes the number low and a weak year makes it high, without the company becoming cheaper or more expensive.
Growth. A high number usually means the market expects earnings to grow. Fast-growing companies are therefore compared with each other, not with a bank. How much growth a given number amounts to is worked out in the lesson on what growth is worth.
Negative P/E and P/E over 100
A company with a loss has no meaningful P/E. A negative number only says there are no earnings to divide by. People then often use the price-to-sales ratio instead.
Right now none of the 20 companies has a loss.
A P/E over 100 means earnings are small compared with the price, often for a while or early in a company's life.
Test yourself
Company A has a P/E of 10 and company B a P/E of 30. What do you know for certain?
The number for a single company is on its stock page.