Meaning and example
P/E compares a share’s market price with earnings per share. A compatible alternative is company market capitalization divided by the earnings attributable to the relevant owners. Historical P/E uses an already reported result; forward P/E uses an expected result. They must not be mixed without explanation.
If a hypothetical company’s share costs 300 roubles and annual EPS is 20 roubles, P/E is 15. This is a relationship between price and accounting earnings, not a promise to recover the investment in fifteen years. Earnings and quotations can change, and the allocation of the result between dividends and business development is not predetermined.
Limits of interpretation
A low P/E does not prove that a share is cheap: it may reflect temporarily high earnings or serious risks. When the company has a loss, the usual interpretation of the multiple loses meaning. For comparison, check the industry, debt burden, earnings quality and matching periods, and separate one-off income from recurring activity.
Related reading: [market capitalization and multiples](/guides/market-cap-and-multiples/), [peer comparison](/guides/peer-comparison/), [multiples tool](/tools/multiples/) and [earnings per share](/glossary/pribyl-na-akciyu/).