What's a good P/E ratio?

Context matters. S&P 500 average is often 15–25. Growth stocks may have P/Es of 30+. Value stocks might be 10–15. Compare to similar companies.

Why do some stocks have very high P/Es?

Investors expect strong future earnings growth. Tesla and Amazon have had high P/Es because the market priced in years of growth. High P/E can mean overvalued or market expects big things.

Should I avoid high P/E stocks?

Not necessarily. High P/E can mean a quality company with growth runway. But understand the story—don't buy just because a stock is popular.

Understanding P/E Ratio: A Complete Guide | Investors Lab

What Is the P/E Ratio?

P/E = Stock Price ÷ Earnings Per Share (EPS)

Example: $100 stock, $5 EPS = P/E of 20. You're paying $20 for every $1 of annual earnings.

What It Tells You

High P/E: Market expects strong growth. Can indicate overvaluation or a great company.
Low P/E: Market is skeptical or company is undervalued. Can indicate a bargain or a troubled business.
Negative P/E: Company has losses. P/E isn't meaningful.

Trailing vs. Forward P/E

Trailing P/E: Uses past 12 months earnings. Historical.
Forward P/E: Uses projected future earnings. Forward-looking but estimates can be wrong.

Limitations

Industry differences: Tech stocks often have higher P/Es than banks. Compare within sectors.
Earnings can be manipulated: Look at cash flow and revenue too.
Growth matters: A high P/E can be justified by rapid earnings growth (PEG ratio adjusts for this).