P/E (TTM)
How many dollars investors pay per $1 of earnings (last 12 months). A P/E of 20 means the market pays $20 for each $1 earned. Compare within the same sector, not across them.
Formula
Price / EPS = {price} / {eps}
Why it matters
The most widely-used valuation shorthand. It tells you how many dollars investors are willing to pay for each dollar of current earnings. A P/E of 20 means the market is paying $20 per $1 of earnings.
How to read it
Compare within the same sector — typical ranges: Utilities 12-18x, Financials 10-15x, Consumer Staples 18-24x, Technology 20-35x+. A very low P/E (<8) may signal distress or a value opportunity. A negative P/E means the company is unprofitable. Cyclical companies often look cheapest at peak earnings (low P/E) right before a downturn. Historically, buying stocks in the lowest P/E decile has outperformed the highest decile by ~5% annually over 50+ years (Basu, 1977).
Source
Shiller, Robert. "Irrational Exuberance" (2000). Historical S&P 500 CAPE ranges from 5x (1920) to 44x (2000).
Lessons that use this term
Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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