In 30 seconds
- The P/E ratio divides the share price by earnings per share: how many times over you pay for a year's earnings.
- Coca-Cola traded at a P/E of 23.0 at the end of 2025 ($69.91 divided by $3.04 of earnings per share).
- A P/E only means something in comparison: with the company's historical average, its growth and its sector.
- When a company is losing money the P/E is meaningless, and in cyclical companies a low P/E can signal that earnings are about to fall.
Introduction
On December 31, 2025, a share of Coca-Cola closed at $69.91, and the company had earned $3.04 per share that year. Anyone buying was paying 23 times annual earnings. On Kaplio's data as of October 4, 2026, Coca-Cola trades at a P/E of 25.7. PepsiCo, its perennial rival, at a P/E of 16.5. So is Coca-Cola much more expensive? That number, how many times over you pay for the earnings, is the P/E ratio, and the short answer is that it depends on what you compare it with.
Explanation
The P/E ratio (price-to-earnings ratio) divides a stock's price by the profit the company earns per share in a year. It tells you how many times over you're paying for those earnings. It's the most widely used valuation multiple in the world because you can calculate it from two numbers available almost anywhere.
Imagine someone offers to sell you the bakery around the corner. It clears $10,000 a year and the owner wants $150,000. You'd be paying 15 times earnings: a P/E of 15. If profit never changed, it would take you 15 years to get your money back. A stock works the same way, except you're buying a sliver of the company instead of the whole shop.
How to calculate it
You need the share price, which shows up in any stock quote, and earnings per share (EPS), which the company reports on its income statement: net income divided by the number of shares. Divide the first by the second. You get the same result if you divide market capitalization by total net income.
Pay attention to which earnings you use. The trailing P/E uses earnings from the last reported year or the trailing twelve months. The forward P/E uses analysts' forecasts for next year, so it's only as good as their guesses. When you compare two companies, use the same type for both.
Here's a handy trick: flip it. Divide 1 by the P/E and you get the earnings yield. With a P/E of 23, it's 4.3%: what your money would earn if the company paid out all of its profit to you. That lets you compare it with what a bond or a savings account pays.
Formula
P/E = Share price / Earnings per share (EPS)
EPS = Net income / Number of shares
Also: P/E = Market capitalization / Net income
Earnings yield = 1 / P/E
Example
The table compares the P/E of four consumer staples giants on a trailing-twelve-month basis, as of October 4, 2026. Read it as how many years of current earnings you pay for each share. Coca-Cola trades at 25.7 times. PepsiCo at 16.5. Procter & Gamble at 21.5. Colgate-Palmolive at 33.1: the most expensive of the group on this measure.
Step by step: Coca-Cola at the end of 2025
1. Share price on December 31, 2025: $69.91.
2. Diluted earnings per share for 2025, from its Form 10-K annual report: $3.04.
3. Divide the price by earnings per share: a P/E of 23.0.
4. Earnings yield = 1 / 23.0 = 4.3%.
Why does the table say 25.7 and the walkthrough 23.0? Because they're two different snapshots. The walkthrough uses the price and earnings at the end of 2025; the table uses the October 2026 price and trailing-twelve-month earnings. If the P/E has gone up, the share price has climbed faster than earnings have grown. Always check the date before comparing two P/Es.
Before you check the stock page: do you think Colgate-Palmolive trades above its own ten-year average, or only above its rivals? They're not the same thing, and the next section explains why.
Real-data example
| Company | Ticker | P/E |
|---|---|---|
| The Coca-Cola Company | KO | 25.7 |
| PepsiCo, Inc. | PEP | 16.5 |
| The Procter & Gamble Company | PG | 21.5 |
| Colgate-Palmolive Company | CL | 33.1 |
How to read it
How to read it
A P/E isn't high or low in the abstract. The most useful comparison is with the company's own history, which is what the Summary on every Kaplio stock page does.
| Comparison | Cheap | Fair | Expensive |
|---|---|---|---|
| Current P/E vs. its 10-year average | below 90% of the average | 90-110% | above 110% |
| P/E vs. growth (Peter Lynch) | P/E lower than the annual earnings growth rate | about the same | P/E far above growth |
Every sector has its own level. Banks and oil companies tend to trade on low P/Es because their earnings are cyclical; fast-growing tech companies trade on high ones because the market is paying for future profit. Always compare within the same sector. Benjamin Graham, in "The Intelligent Investor," told the defensive investor not to pay more than 15 times average earnings over the past three years. Lynch added growth to the picture, which is covered in the PEG lesson.
Pitfalls and limitations
1. The negative P/E. If the company loses money, the P/E comes out negative and means nothing. Intel lost $4.38 per share in 2024 and $0.06 in 2025: it had no P/E. Kaplio shows it as "N/A."
2. Cyclicals fool you in reverse. A steelmaker or a shipping company shows its lowest P/E right at the top of the cycle, when earnings are at a record and about to fall. Here a low P/E can be the worst possible signal.
3. A one-off gain. Selling a subsidiary inflates one year's earnings and pushes the P/E down. Check where the earnings come from before you celebrate a cheap stock.
4. The P/E can't see debt. Two companies on the same P/E can carry very different amounts of debt. That's what enterprise value is for.
Case in point: Intel, when the P/E disappears
With losses in 2024 and 2025, Intel's P/E simply ceased to exist. Anyone who relied on that number alone had nothing to go on. In cases like this you have to switch tools: revenue, cash and debt. The P/E is where the analysis starts, never where it ends.
Practice on Kaplio
Frequently asked questions
What is a good P/E ratio?
There's no universal good P/E. As a benchmark, Benjamin Graham told defensive investors not to pay more than 15 times average earnings over three years, and Peter Lynch wanted a P/E no higher than the annual growth rate of earnings. A P/E below the company's own historical average is usually the best place to start.
Is a P/E ratio of 30 good or bad?
It depends on what you compare it with. A P/E of 30 means paying 30 years of today's earnings. For a fast-growing tech company that can be reasonable; for a slow-growing consumer staples business it's demanding. Kaplio treats a stock as expensive when its P/E is above 110% of its own ten-year average.
What is Coca-Cola's P/E ratio?
As of October 4, 2026, Coca-Cola traded at a trailing-twelve-month P/E of 25.7, against 16.5 for PepsiCo. At the end of 2025 it stood at 23.0: a $69.91 share price divided by $3.04 of diluted earnings per share. The figure moves every day with the price, so always check the date.