P/E Ratio

What it is\nP/E divides today's share price by the company's annual earnings per share. A P/E of 20 means: pay 20× this year's earnings for each share, or equivalently, get a 5% earnings yield.\n\n## How Buffett thinks about it\nBuffett: "Price is what you pay; value is what you get." A low P/E doesn't automatically make a stock cheap — if earnings are temporarily inflated or the business is shrinking, a P/E of 5 could still be expensive. A P/E of 30 on a business that compounds earnings at 15% for 20 years can be a bargain in hindsight.\n\n## What "good" looks like\n- Compare a stock's P/E to:\n 1. Its own historical average — if AAPL's 10-year median P/E is 18 and it trades at 32 today, the market is pricing in significant new growth\n 2. The S&P 500's P/E (typically 15–22)\n 3. The 10-year Treasury yield inverted (a "fair" P/E is roughly 1 / risk-free rate)\n\n## Use TTM, not forward P/E\nForward P/E uses analyst estimates which are systematically optimistic. TTM (trailing twelve months) is the actual reported number.