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Individual Stocks

Price / Earnings Ratios and Other Calculations

What is a “multiple”?

In the example of a company with a P/E ratio of 15, also called “trading at a multiple of 15,” someone who buys stock is willing to pay $15 for every dollar of earnings, or a multiple of earnings. The P/E ratio may be used to see how a company compares to its peers, and whether a stock price is too expensive or trading at a discount relative to its peers. Stocks with very high P/E ratios are very highly in demand, as investors have bid up the current price of a stock in order to profit on expected earnings in the future.



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