The price-to-earnings ratio, or P/E ratio, divides a company's market capitalization by its trailing twelve-month net income. It tells you how much investors are willing to pay for each dollar of the company's annual earnings. A P/E of 20 means investors are paying $20 for every $1 of annual earnings, or equivalently, the company's earnings yield (the inverse) is 5%.
P/E is the most widely used valuation metric and the starting point for nearly all investment analysis, but it has significant limitations. It does not account for growth (a high P/E may be justified if earnings are growing rapidly), debt levels (two companies with the same P/E but different leverage have different risk profiles), or earnings quality (companies can manage earnings through accounting choices).
P/E is undefined when earnings are negative and can be misleading when earnings are near zero (producing extremely high ratios) or depressed by one-time charges.
P/E Ratio = Market Capitalization / Net Income (TTM)
There is no single good P/E ratio, but there is a normal range. Among US companies with a market capitalization above $2 billion and positive trailing earnings, the median P/E is 21.4, and the middle half trade between 14.0 and 35.9. For companies above $10 billion the median rises to 24.7. About 19% of companies above $2 billion have zero or negative earnings, so their P/E is not meaningful.
| Industry | Median | Middle 50% |
|---|---|---|
| Insurance | 12.1 | 8.5 – 16.2 |
| Banks | 12.3 | 10.8 – 14.2 |
| Oil & gas | 12.6 | 7.5 – 24.5 |
| Telecom & media | 15.0 | 6.7 – 33.4 |
| Transportation | 19.8 | 13.3 – 40.4 |
| Pharma & biotech | 20.1 | 12.8 – 49.9 |
| Food & beverage | 20.7 | 14.5 – 34.3 |
| Retail | 20.7 | 13.9 – 32.2 |
| Utilities | 21.0 | 16.3 – 25.5 |
| REITs | 24.4 | 15.0 – 38.5 |
| Software & IT services | 27.0 | 15.6 – 55.4 |
| Industrial manufacturing | 27.4 | 18.5 – 44.7 |
| Medical devices | 28.4 | 21.1 – 44.8 |
| Semiconductors & hardware | 43.2 | 24.7 – 72.2 |
Banks and insurers trade at the lowest multiples because their earnings are cyclical and tied to credit and interest rates, while semiconductor and software companies trade at the highest because investors are paying for expected growth. A P/E of 15 can be expensive for a bank and cheap for a chip designer, which is why the comparison that matters is against direct peers and the company's own history.
A low P/E is not automatically a bargain. Earnings at a cyclical peak make the ratio look cheap just before profits fall, and one-time gains can inflate trailing earnings. Figures are GeminIQ calculations across US companies that file with the SEC, using each company's latest reported period as of September 2026. The middle 50% runs from the 25th to the 75th percentile. The industry table groups companies by SIC code and includes those above $300 million in market capitalization.
GeminIQ divides market cap (price × basic shares) by TTM net income from SEC filings.
A: For profitable US companies above $2 billion in market cap, the median P/E is 21.4 and the middle half trade between 14.0 and 35.9. Banks and insurers typically trade near 12, while semiconductor and software companies trade far higher. A good P/E is one that is reasonable relative to direct peers and the company's own growth and history.
A: P/E does not account for growth, leverage, or cash on the balance sheet. A company with a P/E of 30 growing earnings at 25% annually is arguably cheaper than a company with a P/E of 15 growing at 3%. P/E also breaks down when earnings are negative or distorted by one-time items.
A: P/E depends on both the share price (which varies by timing) and net income (which can differ by definition). Some platforms use diluted shares, which produces a higher market cap and a higher P/E. GeminIQ uses period-end basic shares and TTM net income from the filing.
A: It is high for most companies. A P/E of 40 is above the 75th percentile (35.9) for profitable US companies above $2 billion in market cap. It can still be reasonable for a business growing earnings quickly, such as a semiconductor company, where the industry median is 43.2. A P/E of 50 or more needs sustained high growth to justify it.
A: A negative P/E means the company lost money over the last twelve months. The ratio is not meaningful in that case, so GeminIQ and most platforms show it as not meaningful rather than as a number. Price-to-sales or EV/revenue are the usual substitutes for unprofitable companies.
Further Reading: Financial Metrics for Value Investors: A Lululemon Case Study
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