What the P/E ratio is and how to compare it with its sector

The P/E (price-to-earnings ratio) divides a stock's price by its earnings per share (EPS). It is the same as dividing the market value of the whole company by its net income.

With the data on Apple's company page for September 18, 2026: the stock closed at 336.13 dollars and earnings per share over the last twelve months were 8.71 dollars. 336.13 / 8.71 = 38.59. That day the market was paying 38.59 dollars for each dollar of Apple's annual earnings.

One way to read it is upside down: 1 / 38.59 = 2.59%. That is the earnings yield, what the company earns each year for every 100 dollars of price. Another common reading, “years of earnings you are paying for”, only holds if earnings stood still, and they never do.

The trailing P/E uses the earnings already reported for the last four quarters: it is a fact, taken from the reports the company filed with the SEC (what those reports are is in the 10-K and 10-Q guide). The forward P/E uses the earnings analysts expect for the next twelve months: it is a forecast.

For NVIDIA, analysts expected earnings to nearly double, and its forward P/E was half the trailing one. Alphabet was the opposite: they expected lower earnings than the last reported, and the forward P/E came out higher. When the two P/Es diverge that much, the number you read depends on whether you trust the past or a forecast more, and it is worth knowing which one you are looking at.

The technology median is more than double the financial services one. That does not mean every tech company is expensive or every bank is cheap: the market pays differently for different earnings. Earnings expected to grow fast are paid at a higher multiple than earnings expected to stay flat; earnings that depend on the economic or credit cycle, at a lower one. Comparing a bank's P/E with a software company's mixes all of that together.

That is why the useful question is not “is this P/E high?” but “is it high for its sector?”. Even then, a P/E above its sector median does not say whether the stock will rise or fall: it says the market expects more from it than from the typical company in the sector, or sees less risk in it.

The median is used, not the mean, for a reason visible in the technology row: its mean was 113.39, because CrowdStrike had a P/E of 4,753 on earnings per share of 0.05 dollars. A single near-zero profit drags the mean of 81 companies; it does not move the median.

Apple had a higher P/E than Microsoft and NVIDIA, and above its sector median, but in the middle of the technology table: 49 of 81. The three big banks were practically at their sector's median. And in consumer defensive, two beverage companies sat far apart: PepsiCo in the lowest third, Coca-Cola above the median. Within a single sector, the P/E also separates businesses that grow, pay out or borrow differently.

Some sectors are tighter than others. In utilities, the middle half of the 31 companies sat between 17.70 and 22.75; in real estate, between 23.69 and 50.04. The wider the range, the less it means to be a few points above or below the median.

• A temporarily low profit sends the P/E soaring. Merck had a P/E of 117.50 on earnings per share of 1.25 dollars over the last twelve months, and a forward one of 15.38 because analysts expected 9.55 dollars. The company page does not say why earnings were so low: that is in its SEC filings.
• With losses there is no P/E. Intel (−2.09 dollars per share) and Ford (−1.87) had no P/E. A missing number makes them neither cheap nor expensive.
• Cyclical companies mislead both ways. At the top of the cycle, with record profits, their P/E looks low just when earnings have the most room to fall; at the bottom, it looks high.
• The P/E does not see debt. Two companies with the same P/E can owe very different amounts. For that, the company page also gives EV/EBITDA, which includes net debt.
• In real estate, accounting earnings say little. REITs depreciate their buildings and their net income ends up below the cash they generate; the sector usually looks at another measure, FFO. Its median of 30.18 has to be read with that in mind.

The model's value factor does not use the plain P/E but its inverse, the earnings yield, together with two other measures: the book yield and the sales yield. It requires at least two of the three, so a loss-making company can still have a value score. Each measure is compared with the whole index, not with the sector, and turned into a Z-score. On September 18, 2026, Apple had a value Z of −0.76 (rank 464 of 494) and JPMorgan one of 0.07 (rank 184). The score describes where each company stands; it is not a recommendation.

The full recipe is in the methodology, and the day's order in the rankings. What holding the cheapest companies in the index would have returned is in the value investing guide: the 20-stock value portfolio would have returned 11.36% a year between 1998 and 2026, with a maximum drawdown of 80.01%. Those are simulated results, before costs.

What is a good P/E ratio?

There is no single number that works for every company. A P/E only says how much the market pays today for each dollar of earnings, and what is normal varies a lot from sector to sector: on September 18, 2026, the median was 14.80 in financial services and 32.89 in technology. Whether a P/E is low or high does not say whether the stock will go up or down either.

What does a negative P/E mean?

That the company lost money over the last twelve months. A negative P/E has no useful reading, so most sources do not compute it: on September 18, 2026, 26 of the 503 S&P 500 companies had no P/E for that reason, Intel and Ford among them.

What is the difference between the trailing and the forward P/E?

The trailing P/E divides the price by the earnings already reported over the last twelve months; the forward one divides it by the earnings analysts expect for the next twelve. The first is a fact; the second, a forecast that can be wrong.

Why do banks have lower P/Es than tech companies?

Because the market expects different things from their earnings: how much they will grow, how much risk they carry and how much they depend on the economic cycle. That is why a bank with a P/E of 15 and a tech company with a P/E of 30 can both sit in the middle of their sectors, and comparing them with each other says little.

Where can I see an S&P 500 company's P/E?

On its page on this site, next to the forward P/E, price-to-book and the model's value score, for example on Apple's. They are descriptive data, not a recommendation to buy or sell.

• They are from a single day. The P/E changes with every price and every quarterly report. The ones on this page are from the close of September 18, 2026; the ones on the company pages update every trading day.
• The median is of profitable companies. The 26 loss-makers are left out, so the median of a sector with many loss-making companies describes only the profitable ones.
• The sectors are the site's. Eleven, the same used on each company page; a different classification would give other medians. One of the 503 companies had no sector assigned that day.
• The forward P/E is an analysts' forecast, not a figure published by the company.

More guides: what a 10-K and a 10-Q are, what value investing is, how to read a portfolio's Sharpe ratio and drawdown, what momentum is, what insider buying is and three ways to invest in the S&P 500.