What PER is
The Price to Earnings Ratio compares the market price of a share with the earnings generated per share. Investors often use it to judge whether a stock looks relatively cheap, fairly valued, or expensive compared with earnings.
Formula
This calculator uses the same core logic as the original source:
- EPS = Net Income ÷ Outstanding Shares
- PER = Current Stock Price ÷ EPS
Because EPS is derived first, the calculator needs both net income and the number of outstanding shares before it can calculate PER.
Interpreting ranges
This page uses simple rule of thumb ranges for quick interpretation:
- Below 15: Potentially Undervalued
- 15 to 25: Fairly Valued
- Above 25: Potentially Overvalued
These ranges are only broad guides. Reasonable PER levels vary widely by sector, growth rate, interest rate environment, and business quality.
Limitations
PER is useful, but it should not be used alone.
Accounting and one time effects matter
- Net income can be affected by accounting choices or one time gains and losses.
- Very low EPS can make PER look unusually high.
- Negative earnings make the traditional PER less meaningful.
Context matters
- Compare against peers in the same industry.
- Look at growth expectations and balance sheet risk.
- Use other metrics such as PBR, dividend yield, or free cash flow ratios as well.
Practical tips
- Use recent and reliable price and financial statement data.
- Check whether earnings are recurring or distorted by one time items.
- Compare several scenarios on this page to understand sensitivity.
- Use professional judgment before making investment decisions.
References
Wikipedia: Price to earnings ratio | PER and EPS references
Image credits
- Funifytools site illustration resource.
