Price–Earnings Ratio (P/E)

Price–Earnings Ratio (P/E)

Formula

$$\text{P/E ratio} = \frac{\text{Market price per ordinary share}}{\text{Earnings per share}}$$

Explanation

• Shows how many ringgit investors are willing to pay for RM1 of earnings.
• Indicates investor expectations and market confidence.

Satisfactory / rule of thumb

• Higher P/E often means higher growth expectations, but also possibly overpricing.
• Compare with:
  • Same company over time
  • Other companies in the same industry.

Industry norm

• Growth companies: usually higher P/E
• Stable, mature companies: lower P/E

Example

• EPS = RM0.40
• Market price per share = RM4.00

$$\text{P/E} = \frac{4.00}{0.40} = 10 \text{ times}$$

Investors pay RM10 for each RM1 of earnings.