What is the P/E ratio?
In short: the price-to-earnings (P/E) ratio is a company's share price divided by its earnings per share over the last twelve months. It shows how many dollars investors pay for each dollar of annual profit: a P/E of 15 means paying $15 for $1 of earnings.
How is the P/E ratio calculated?
P/E = share price ÷ earnings per share. Earnings per share is the company's net profit for the last twelve months divided by the number of shares. "Trailing" P/E uses reported past earnings; forward P/E uses analysts' forecasts.
What does a high or low P/E mean?
A low P/E means paying less for each dollar of profit. That can mean the shares are cheap — or that the market expects profits to fall. A high P/E usually means investors expect earnings to grow, and are paying now for profit they expect later.
| Company | Trailing P/E (4 October 2026) |
|---|---|
| BHP (BHP.AX) | 22.0 |
| Commonwealth Bank (CBA.AX) | 23.3 |
| Wesfarmers (WES.AX) | 30.1 |
Where the P/E misleads
- Losses make it meaningless. A company with negative earnings has no useful P/E.
- One-off items distort it. An asset sale can inflate a year's profit and make the P/E look low.
- Sectors differ. A miner, a bank and a retailer on the same P/E are not equally cheap, because their growth and risk differ. Compare within a sector.
- Cyclical earnings flatter at the peak. A miner's P/E often looks lowest when commodity prices — and profits — are at their highest.
How ShareSift uses it
On ShareSift, a trailing P/E below 15 (and positive) earns 12 of 100 points in the ShareSift value score.
Frequently asked questions
What is a good P/E ratio?
There is no single good P/E. A figure around 15 is a traditional value benchmark, but fast-growing companies routinely trade far higher and shrinking ones lower. The useful comparison is with the company's own history and with similar companies in its sector, not with the market as a whole.
Is a low P/E always a bargain?
No. A low P/E can mean the market expects profits to fall, or that the latest year's earnings were boosted by something that will not repeat. Check whether the business is improving — the Piotroski F-Score is built for exactly that question — before reading a low P/E as cheap.
What is the difference between trailing and forward P/E?
Trailing P/E divides the price by the last twelve months of reported earnings. Forward P/E uses analysts' forecasts for the next year instead. Trailing is based on facts but looks backwards; forward looks ahead but depends on estimates that are often wrong.
Sources
- ASIC Moneysmart, Choose your investments — the Australian regulator's guide to assessing investments.
- Company figures: Yahoo Finance via ShareSift, as of 4 October 2026. They change daily.
This information is general in nature and does not take into account your objectives, financial situation or needs. ShareSift is not a financial adviser and does not hold an Australian Financial Services Licence. Companies named are examples of how the measure works, not recommendations. Consider whether any information is appropriate for you and seek independent advice before making an investment decision.