Share price ÷ earnings per share. Rough gauge of how expensive a stock is relative to its profits. STI has historically traded at 10×–15× P/E.
Price-to-Earnings ratio = current share price ÷ earnings per share. A rough gauge of how expensive a stock is relative to its profits.
If a stock trades at S$50 and earns S$2 per share annually, its P/E is 25. Investors are paying S$25 for every S$1 of current annual profit.
Below 10: typically 'cheap'. Could indicate genuine value, or distress, or a cyclical low.
10 – 20: average for mature large-cap stocks across most markets.
20 – 30: above-average. Common for growing companies with reliable earnings.
Above 30: expensive. May reflect strong future growth expectations or excessive market enthusiasm.
Historical anchors: S&P 500 long-run average P/E is ~16. STI long-run average is ~12 – 14. Tech-heavy NASDAQ averages closer to 25 – 30.
Trailing P/E: uses the last 12 months of actual earnings. Backward-looking, more reliable.
Forward P/E: uses the next 12 months' analyst-estimated earnings. Reflects expectations; vulnerable to estimate errors.
Use both for context. Trailing P/E far above forward P/E suggests earnings are expected to grow sharply. Trailing P/E far below forward suggests earnings are expected to drop.
Earnings can be manipulated through accounting choices. Cash flow yields are sometimes a more honest measure.
Cyclical companies (banks, commodity producers, automakers) look cheap at the top of the cycle (high earnings, low P/E) and expensive at the bottom (low earnings, high P/E). P/E logic inverts.
Loss-making companies have negative P/E — unusable. Look at price-to-sales, price-to-book, or EV/EBITDA instead.
Cross-country comparison: emerging markets typically trade at lower P/E than developed markets due to higher risk premiums. The 'cheaper' market isn't always the better investment.
Price-to-Earnings ratio = share price ÷ earnings per share. A rough gauge of how expensive a stock is relative to its current profits. P/E of 20 means investors are paying S$20 for every S$1 of annual earnings.
The STI has historically traded at 10× – 15× earnings, lower than the S&P 500 (16× – 25× long-run average). Singapore's index leans bank-and-REIT-heavy, which trade at lower P/E multiples than tech-heavy US indexes.
Trailing P/E uses the last 12 months of actual earnings (backward-looking, reliable). Forward P/E uses analyst estimates of next 12 months' earnings (forward-looking, vulnerable to estimate errors). Compare both — the gap reveals whether earnings are expected to grow or shrink.
No. Low P/E can reflect cheap valuation OR a struggling business with declining earnings. Cyclical companies (banks, commodities) look cheap at the top of the cycle and expensive at the bottom. Always look at growth, sector context, and balance sheet alongside P/E.