Business
How to read a P/E ratio properly
Why a “P/E of 30” is meaningless without context — and the 4 numbers to compare against.
P/E definition
Price per share ÷ earnings per share.
P/E alone tells you nothing
Always compare against:
- Sector median — IT trades at 25–35, FMCG at 40–60, PSU banks at 6–10.
- 5-year history of the same stock.
- Growth rate (PEG = P/E ÷ growth %; below 1 is cheap).
- Quality — high ROE + low debt deserves a premium.
When P/E lies
- Earnings boosted by one-time gain
- Cyclicals at peak earnings = low P/E = trap
- Loss-making startups = N/A
Elevatools Company Intelligence puts these in context automatically.
Related reads