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 .
How do you explain the P E ratio? ›
Price to earnings ratio, or P/E, is a way to value a company by comparing the price of a stock to its earnings. The P/E equals the price of a share of stock, divided by the company's earnings-per-share. It tells you how much you are paying for each dollar of 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? ›
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 does PE ratio mean in layman's terms? ›
What is PE Ratio? Price to Earnings Ratio or Price to Earnings Multiple is the ratio of share price of a stock to its earnings per share (EPS). PE ratio is one of the most popular valuation metric of stocks. It provides indication whether a stock at its current market price is expensive or cheap.
What is a good PE ratio for banks? ›
Good P E Ratio
| S.No. | Name | P/E |
|---|
| 1. | HDFC Bank | 18.96 |
| 2. | ICICI Bank | 17.57 |
| 3. | St Bk of India | 11.16 |
| 4. | Life Insurance | 16.50 |
23 more rowsInvestors not only use the P/E ratio to determine a stock's market value but also in determining future earnings growth. Investors might expect the company to increase its dividends as a result if earnings are expected to rise. Higher earnings and rising dividends typically lead to a higher stock price.
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? ›
Usually, the market considers a P/E ratio below 20 as a good investment opportunity. 3. What if PE ratio is 40? A high P/E ratio, above 40, indicates investors willing to buy a stock at 40 times or more its earnings.
Why is Amazon PE ratio so high? ›
Why is Amazon PE Ratio so high? Amazon's P/E ratio is higher than most companies in the retail industry because investors are optimistic about its future growth potential. As mentioned, a high price multiple can indicate the market expects higher growth from a company.
How to understand P/E ratio? ›
The price-to-earnings (P/E) ratio is the proportion of a company's share price to its earnings per share. A high P/E ratio could mean that a company's stock is overvalued or that investors expect high growth rates.
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.
Is a negative PE ratio good? ›
While a negative P/E ratio indicates a company is reporting losses, this is not always a sign of impending bankruptcy. A company might have a negative P/E ratio, yet be on a path to growth. If a company changes its accounting systems or policies, that might change the P/E ratio.
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? ›
Understanding the Forward P/E Ratio
Companies also provide investors with the expected earnings per share for each of the upcoming quarters. From there, investors can calculate the forward P/E ratio as follows: Forward P/E ratio: Current Share Price / Expected EPS for the period.
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.
