A stock's current price divided by the company's trailing 12-month earnings per share.
Benefit
By looking at the five-year average P/E alongside the current P/E, you can quickly tell whether a company is currently valued above or below its average P/E.
Origin
The company’s price is received from ComStock, a division of Interactive Data Corporation. The company’s earnings are found in the most recent annual report and 10-Q statement. Total shares outstanding is taken from the most recent 10-K forms.
For the Pros
Use the following formula to look for companies that trade at a discount to their historical valuations. The same equation can be used with Price/Book, Price/Sales and Price/Cash Flow:
PE Current / PE 5-Year Average