Price-to-Earnings Ratio, Trailing (P/E TTM)

The trailing P/E ratio compares a company’s current stock price to its earnings per share over the last twelve months (TTM stands for "trailing twelve months"). A P/E of 20 means investors are paying $20 for every $1 of annual profit the company generated.

A high P/E can mean investors expect fast growth ahead (and are paying up for it), or it can mean the stock is just expensive. A low P/E might be a bargain, or it might mean the company has problems the market is already pricing in. The number alone does not tell you which.

P/E is most useful when comparing companies in the same industry. Tech companies routinely have P/Es above 30 while utilities might sit around 15. Comparing across industries does not tell you much.

A negative P/E means the company lost money, and most data providers do not display it. Be careful with very high P/Es (above 100) — they usually mean earnings recently collapsed while the price has not caught up yet.

Value screening is the most common use. Look for stocks with P/Es below the industry average on the assumption that they are undervalued relative to their peers. This is a starting point, not a conclusion — a low P/E can also mean the company’s earnings are about to decline.

Some investors compare the P/E to the company’s earnings growth rate (the PEG ratio). A stock growing earnings at 20% with a P/E of 20 (PEG of 1.0) might be considered fairly valued, while the same P/E with only 10% growth (PEG of 2.0) might be expensive.