P/E Ratio Deep Dive: How Investors Use Price-to-Earnings

P/E ratio deep dive: what it means, how to interpret it by industry, common pitfalls, and how it fits into intrinsic value investing.

What the P/E ratio measures

The P/E ratio is price divided by earnings per share. It shows how much investors are paying for each $1 of earnings.

Common mistakes

  • Comparing P/E across very different industries
  • Ignoring debt and cash flow
  • Using P/E for companies with unstable or negative earnings

Put it in context with intrinsic value

P/E is one input. Compare price vs intrinsic value and check business quality.

P/E ratio guideIntrinsic valueScreen by valuation

FAQs

What is a good P/E ratio?▼

There is no universal “good” P/E. It depends on growth, risk, and industry. Compare to peers and the company's history.

Is a low P/E always better?▼

Not necessarily. Low P/E can signal low growth or high risk. Use fundamentals and intrinsic value to interpret it.

Related

Fundamental analysisValue investing

Intrinsic Investor is for education and research only. Not financial advice.