Equity research
P/E and PEG valuation
Value a share with trailing and forward P/E and the PEG ratio, and recognise where earnings multiples mislead.
Learning objectives
- Calculate trailing and forward P/E and match the multiple to the right EPS
- Calculate PEG ratios and value a share from peer medians
- Explain the limits of P/E: one-offs, negative earnings, and differences in growth, risk and leverage
The price-to-earnings ratio is the most quoted valuation number in equity research: how many riyals investors pay for one riyal of a company's annual earnings. Analysts use it to compare a share with its peers and its own history, and to turn an EPS forecast into a value per share.
It is quick, and that is its danger. A P/E compresses growth, risk, accounting and one-off items into one number, so a "cheap" share is often cheap for a reason. Bustan Foods Co. is a fictional listed food producer, and its share prices, the market index and all other figures are invented for teaching. Examples are educational and illustrative, not investment advice.
P/E = Price ÷ EPS · Value per share = peer P/E × company EPS (same basis) · PEG = forward P/E ÷ (expected EPS growth × 100)
- Trailing P/E
- price ÷ EPS of the last reported year (here FY2025A)
- Forward P/E
- price ÷ forecast EPS for the next year (here FY2026E)
- Expected EPS growth
- a multi-year forecast growth rate (here a 3-year EPS CAGR), entered as a whole number: 12% → 12
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That's the last lesson in Investment Analysis
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