Technicals Stability Returns



Understanding Trailing PE (Price-to-Earnings) Ratio

Trailing PE is calculated as the Current Price divided by Trailing Twelve Months EPS. This metric is easy to calculate because companies declare the financial results, including EPS, each quarter. It is useful to compare relative stock prices between companies within the same industries. This metric also provides insight into whether the company's stock price is overvalued or undervalued.

The formula to derive Trailing PE Ratio
Trailing PE Ratio


Current Price - It is the most recent selling price of stocks. The current price indicates the current value of the stocks, and it is also known as market value.

TTM EPS - Here, TTM refers to Trailing Twelve Months, and EPS refers to Earnings Per Share. TTM EPS is a measure of the company's profits available for the shareholders on a per-share basis and calculated by dividing the Net Income by Weighted Share Outstanding of the previous 12 months. EPS is found in the company's Income Statement.

Example of TTM EPS: The Current Price of Bajaj Finserv company is Rs. 469.05, and TTM EPS is Rs.31.04.
The value as per the formula (Trailing PE = Current Price / TTM EPS) is calculated as (469.05 / 31.04) = 15.11.


Key Highlights
A low trailing PE ratio is considered good. It indicates that the company is undervalued. But you have to check whether the stock is genuinely undervalued or not.

It is calculated by dividing the Current Price by Trailing Twelve Months EPS.

Trailing PE provides insight into whether the company's stock price is overvalued or undervalued.


While looking at the Trailing PE ratio, the following points should also take into consideration:
The lower trailing PE ratio is considered good. It indicates that the company is undervalued.

Many investors use the Trailing PE ratio because it gives a more accurate valuation of the company.

The difference between the PE Ratio and Trailing PE Ratio is that PE considered EPS of the financial year and Trailing PE considered EPS of last trailing twelve months.

Like the PE ratio, trailing PE also indicates whether the company is undervalued or overvalued.


How to use Trailing PE effectively
A low trailing PE ratio is considered good. But you have to check whether the stock is genuinely undervalued or it is due to other factors.

Many investors prefer Trailing PE over Forward PE Ratio. Because in forward PE ratio we consider Forecasted Earnings.

For better analysis, compare the trailing PE ratio of the company with its industry peers and also check other financial ratios that are related to Trailing PE Ratio like PE Ratio, Forward PE Ratio, EPS, etc.,


Range Indicator of Trailing PE Ratio

Range Indicator Comments Screener at TSR
Below 12 Strong Bullish Extremely Inexpensive Yes
12 to 15 Bullish Inexpensive Yes
15 to 18 Mild Bullish Reasonably Priced Yes
18 to 21 Neutral Fairly Priced Yes
21 to 24 Mild Bearish Expensive Yes
24 to 27 Bearish Very Expensive Yes
Above 27 Strong Bearish Extremely Expensive Yes


Related Trailing PE Screener
Valuation Screener Trailing PE 5 To 10 Trailing PE 10 To 20 Trailing PE 20 To 50