Valuation Ratios
How to tell if the market is cheap or expensive
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Price-to-Earnings (P/E)
- The most common valuation metric. A P/E of 20 means you pay $20 for every $1 of earnings.
- Trailing P/E uses past 12 months of actual earnings
- Forward P/E uses analyst estimates for the next 12 months
- Higher P/E suggests investors expect faster growth—or that the stock is expensive.
P/E=
Stock PriceEarnings Per Share
S&P 500 Trailing P/E Ratio (1920–2025)
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