What Is a P/E 30 Ratio?
A P/E ratio of 30 means that a company's stock price is trading at 30 times the company's earnings per share. The P/E ratio (price-to-earnings ratio) is the valuation ratio of a company's market value per share divided by a company's earnings per share (EPS).
At the most basic level, a P/E ratio identifies for one dollar of earnings what investors are willing to pay for one unit of stock. For instance, a business said to be trading at a P/E ratio of 30:1 would indicate investors are willing to pay $30 in market price for every $1 in earnings. As a relative value indicator, investors can get a sense of which securities are trading (or priced) richly relative to other businesses that may offer a better bargain for the same level of risk.
P/E 30 Ratio Explained
A P/E of 30 is high by historical stock market standards. This type of valuation is usually placed on only the fastest-growing companies by investors in the company's early stages of growth. Once a company becomes more mature, it will grow more slowly and the P/E tends to decline.
In financial circles, the P/E ratio is often a hot topic, with analyst and market prognosticators opining on market trends and whether P/E ratios are higher or lower than historical norms. Although the measure still enjoys a fair amount of attention, insiders know it can be gamed. As such, a number of extensions and alternative metrics have grown in importance. The digitization of companies and markets further complicates traditional interpretations of the ratio.
Understanding the P/E Ratio
Investors often want to compare how the share price of one company compares to that of another. But just looking at the stock price is like comparing apples to oranges since companies have different numbers of shares outstanding, and even if they had the same share float, companies operate in different industry segments or are at different stages in the corporate life cycle. Fortunately, financial analysts have developed a number of tools for such purposes of comparison. The price-to-earnings ratio, or P/E, is one of the most widely used metrics.
FAQs
What Is a P/E 30 Ratio? A P/E ratio of 30 means that a company's stock price is trading at 30 times the company's earnings per share. The P/E ratio (price-to-earnings ratio) is the valuation ratio of a company's market value per share divided by a company's earnings per share (EPS).
What is the formula for the PE ratio with example? ›
P/E Ratio is calculated by dividing the market price of a share by the earnings per share. P/E Ratio is calculated by dividing the market price of a share by the earnings per share. For instance, the market price of a share of the Company ABC is Rs 90 and the earnings per share are Rs 9 .
What does the P/E ratio tell you? ›
Key Takeaways. The P/E ratio is calculated by dividing the market value price per share by the company's earnings per share. A high P/E ratio can mean that a stock's price is high relative to earnings and possibly overvalued. A low P/E ratio might indicate that the current stock price is low relative to earnings.
What does it mean if PE ratio is 20? ›
For instance, if a company has a P/E Ratio of 20, investors are willing to pay Rs. 20 in its stocks for Re. 1 of their current earnings. Hence, when a company demonstrates high P/E Ratio, it means that either the company is overvalued or is on a trajectory to growth.
What does 30x mean in stocks? ›
Example: Let's say a high-growth company A has a P/E ratio of 30x, indicating that investors are willing to pay 30 times the earnings, which is expensive. The company has a historic earnings growth rate of 25%.
What is a good PE ratio for a stock? ›
To give you some sense of what the average for the market is, though, many value investors would refer to 20 to 25 as the average P/E ratio range. And again, like golf, the lower the P/E ratio a company has, the better an investment the metric is saying it is.
What is the best way to calculate PE ratio? ›
The P/E for a stock is computed by dividing the price of a stock (the "P") by the company's annual earnings per share (the "E"). If a stock is trading at $20 per share and its earnings per share are $1, then the stock has a P/E of 20 ($20/$1).
What is a safe P E ratio? ›
Typically, the average P/E ratio is around 20 to 25. Anything below that would be considered a good price-to-earnings ratio, whereas anything above that would be a worse P/E ratio.
Is P/E ratio a good indicator? ›
While P/E ratios are not the magical prognostic tool some once thought they were, they can still be valuable when used the properly. Remember to compare P/E ratios within a single industry, and while a particularly high or low ratio may not spell disaster, it is a sign worth taking into consideration.
Should I buy a stock with a negative PE ratio? ›
An investor should become alarmed if a company consistently shows a negative P/E ratio for a long period—for example, five years in a row. If this is the case, then the company is not in good financial health.
A P/E of 30 is high by historical stock market standards. This type of valuation is usually placed on only the fastest-growing companies by investors in the company's early stages of growth. Once a company becomes more mature, it will grow more slowly and the P/E tends to decline.
Is a PE ratio of 40 good or bad? ›
A high P/E ratio, above 40, indicates investors willing to buy a stock at 40 times or more its earnings. Whether investing at a high PE ratio is good or bad depends on various factors.
Is a PE ratio of 100 bad? ›
If the relative P/E measure is 100% or more, this tells investors that the current P/E has reached or surpassed the past value.
How to read P/E ratio? ›
The most common use of the P/E ratio is to gauge the valuation of a stock or index. The higher the ratio, the more expensive a stock is relative to its earnings. The lower the ratio, the less expensive the stock. In this way, stocks and equity mutual funds can be classified as “growth” or “value” investments.
What is the PE ratio of Apple? ›
Apple (AAPL) PE Ratio (TTM) : 30.12 (As of Jun. 10, 2024)
What is the PE ratio of Tesla? ›
As of today (2024-06-09), Tesla's share price is $177.48. Tesla's Earnings per Share (Diluted) for the trailing twelve months (TTM) ended in Mar. 2024 was $3.92. Therefore, Tesla's PE Ratio (TTM) for today is 45.28.
What is a PE ratio calculator? ›
Price to earnings calculator
A price-to-earnings (P/E) ratio is a financial metric used to evaluate the relative value of a company's stock. It is calculated by dividing the market price per share of a company's stock by its earnings per share (EPS).
How do you calculate expected PE ratio? ›
The forward PE ratio includes the forecasted earnings per share of the company over the next 12 months for determining the price-earnings ratio. One may calculate it by dividing the price per share by forecasted earnings per share over the next 12 months.
What is the equation for finding PE? ›
The formula for potential energy depends on the force acting on the two objects. For the gravitational force the formula is P.E. = mgh, where m is the mass in kilograms, g is the acceleration due to gravity (9.8 m / s2 at the surface of the earth) and h is the height in meters.
What does 10x PE ratio mean? ›
For example, a P/E ratio of 10 means a company's share price is 10x its earnings. Earnings and the P/E ratio give investors key insights into how profitable a company is, what its growth journey has looked like and what its future could be.
