Apple's shares closed at $333.63 on 6 October 2026. Over its last four reported quarters, Apple earned $8.72 a share. So a buyer paid about $38 for each $1 of Apple's yearly profit.
That number, 38.3, is Apple's price-to-earnings (P/E) ratio. This guide shows how the P/E is worked out and where it can mislead. It then tests what a high P/E has meant for the S&P 500, the index of 500 large US companies, over the following ten years.
What is the P/E ratio? The price-to-earnings (P/E) ratio is a company's share price divided by its profit per share over one year. It shows how many dollars a buyer pays for each $1 of yearly profit.
Apple's P/E was 38.3 on 6 October 2026, using its last four quarters of profit. Tesla's was 352.5, because its profit had fallen.
A trailing P/E uses the past year's profit. A forward P/E uses estimates for the next year. For the S&P 500, the trailing P/E was 25.2 in June 2026 on Robert Shiller's data. The forward P/E was 19.0 on 30 September 2026, according to FactSet.
The Cyclically Adjusted Price-to-Earnings (CAPE) Ratio divides the price by ten years of profit, adjusted for inflation. Since 1881, a higher CAPE for the S&P 500 has come before lower returns over the next ten years. When the CAPE started above 30, the median return was −1.1% a year after inflation.
How the P/E ratio is calculated
The P/E ratio has two parts:
Price: the share price.
Earnings per share (EPS): a company's profit after tax for a period, divided by its number of shares.
Diluted EPS also counts shares that could still be created, for example from staff share awards. It is the figure used in this guide.
EPS is the last line of the income statement, covered in How to Read an Income Statement.
Microsoft shows the sum. Its fiscal year ended on 30 June 2026, with diluted EPS of $17.95. Its shares closed at $529.30 on 6 October 2026. $529.30 divided by $17.95 gives a P/E of 29.5.
The profits in this guide follow US accounting rules, called Generally Accepted Accounting Principles (GAAP). Some companies also publish "adjusted" profits, which leave out some costs and give a different P/E.
P/E ratios of Apple, Microsoft, Nvidia, Amazon and Tesla
Source: company SEC filings; YX Insights
Chart 1 divides each company's closing price on 6 October 2026 by its diluted EPS over its last four reported quarters. For Apple, that EPS was $8.72.
Microsoft, Nvidia and Apple sat between 29.5 and 38.3. Amazon looked cheapest, at 20.6. Tesla was far above, at 352.5.
Both ends need a second look:
Amazon. In the quarter to June 2026, Amazon booked $53.4 billion of pre-tax income from outside its main business. Its results release said this came "primarily from our investments in Anthropic", an artificial intelligence company. Amazon's EPS that quarter was $5.75, against $2.78 the quarter before. Without that gain, its P/E would be higher.
Tesla. Its EPS fell from $4.30 in 2023 to $1.08 in 2025. When profit falls faster than the price, the P/E jumps. At 352.5, the price only adds up if profit grows a great deal.
A Discounted Cash Flow (DCF) values a company from the cash it is expected to make. A reverse DCF starts from today's price. It works out how much growth that price needs, in What Is a Reverse DCF?
Trailing P/E vs forward P/E
A trailing P/E uses profit already reported. A forward P/E uses the profit expected over the next 12 months. That expected profit comes from sell-side analyst expectations: estimates published by research analysts at banks.
For the S&P 500, Robert Shiller of Yale University publishes monthly prices and reported earnings back to 1871. On his data, the index's trailing P/E was 25.2 in June 2026. Its median trailing P/E since 1871 is 15.1.
The forward P/E needs those estimates. FactSet, a financial data firm, put the S&P 500's forward P/E at 19.0 on 30 September 2026. Its ten-year average forward P/E was 19.1. What Is the S&P 500? covers the index in full.
The forward P/E is lower because the estimates for the next 12 months add up to more profit than the past year. A forward P/E rests on forecasts, which can miss. A trailing P/E uses reported results, but it describes the past.
The S&P 500 P/E ratio and the CAPE since 1881
A one-year P/E swings whenever profits swing. In May 2009, after profits fell steeply in the financial crisis, the trailing P/E on Shiller's data reached 123.7.
Shiller's fix is the Cyclically Adjusted Price-to-Earnings (CAPE) Ratio. It divides the price by the mean of the past ten years of earnings, each adjusted for inflation. Ten years of profit smooths out a single bad year like 2009.
The CAPE needs ten years of earnings before its first reading. So Shiller's data from 1871 gives a CAPE from 1881.
Source: Robert Shiller, Yale; YX Insights
Chart 2 shows Shiller's CAPE for the S&P 500 each month since January 1881. Its median CAPE is 16.6. It hit a low of 4.8 in December 1920 and a record 44.2 in December 1999. In September 1929, it reached 32.6.
In October 2026, the CAPE stood at 40.7. Before 2026, it had been above 40 only in 1999 and 2000.
Did a high CAPE lead to lower returns?
Take every month from January 1881 to October 2016 and note its CAPE. Then measure the S&P 500's return over the next ten years, with dividends reinvested and after inflation. Group the months by their starting CAPE.
Source: Robert Shiller, Yale; YX Insights
Chart 3 shows the median ten-year return in each group. Months that started with a CAPE below 10 were followed by 11.0% a year. Months that started above 30 were followed by −1.1% a year.
In between, the pattern ran downhill but was not exact. A CAPE of 25 to 30 did a little better than 20 to 25, at 5.6% against 4.9%.
The above-30 group needs care. Its 57 months come from two episodes: 1929, then 1997 to 2002. Their ten-year periods overlap, so they are closer to two results than to 57.
The pattern describes groups of months. A single month can still go its own way. In October 2016, the CAPE was 26.5, well above its median of 16.6. The next ten years still returned 11.7% a year after inflation, against 5.6% for its group's median.
What P/E ratio is good?
There is no single good P/E. A few checks help:
Compare like with like. Trailing with trailing, forward with forward. On Shiller's data, the S&P 500's median trailing P/E is 15.1. FactSet's ten-year average forward P/E is 19.1.
Check what is in the earnings. A one-off gain, as at Amazon, lowers the P/E. A one-off charge raises it.
Weigh growth and quality. A company whose profit grows fast can carry a higher P/E. So can one with a high Return on Invested Capital (ROIC), the profit it makes on the money put into it. What Is ROIC? covers it.
Set loss-makers aside. A company with a loss has negative EPS, so its P/E is negative. Intel lost $4.38 a share in 2024. Its price can be compared with sales or cash flow instead.
Treat it as a shortcut. A Discounted Cash Flow values the future cash itself.
So, is a high P/E bad?
A high P/E is not bad on its own. For one company, it can reflect fast growth, or a profit that has just fallen. For the S&P 500 as a whole, a higher starting CAPE has come before lower ten-year returns since 1881.
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Common questions about the P/E ratio
What is a good P/E ratio?
No single P/E ratio is good for every company. A fast-growing company can justify a higher one than a slow grower. Compare a share with its own history and with similar companies. For the S&P 500, the median trailing P/E is 15.1 on Robert Shiller's data since 1871. FactSet's ten-year average forward P/E is 19.1.
What is the P/E ratio of the S&P 500?
On Robert Shiller's data, the S&P 500's trailing P/E was 25.2 in June 2026, against a median of 15.1 since 1871. Its forward P/E was 19.0 on 30 September 2026, according to FactSet. Shiller's Cyclically Adjusted P/E (CAPE), which uses ten years of profit, was 40.7 in October 2026.
How is the P/E ratio calculated?
Divide the share price by earnings per share over the last year. Microsoft closed at $529.30 on 6 October 2026. Its diluted earnings per share for the year to June 2026 were $17.95. $529.30 divided by $17.95 gives a P/E of 29.5.
What does a negative P/E ratio mean?
A negative P/E ratio means the company made a loss over the period, so its earnings per share are below zero. Intel lost $4.38 a share in 2024. A negative P/E cannot be compared with a positive one, so it tells you little. The price can still be compared with sales or cash flow.
Is a high P/E ratio bad?
A high P/E ratio is not bad in itself. It means the price depends more on future profit growth. For the whole S&P 500, a high long-run P/E has come before weaker returns. Since 1881, months with a Cyclically Adjusted P/E (CAPE) above 30 were followed by a median return of −1.1% a year over ten years, after inflation.
DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.