PER: The Metric Every Investor Must Understand (But With Caution)

Let’s talk about the PER, that magic number you see everywhere when researching a company. What does it really mean? Why do analysts use it so much? And most importantly: is the PER alone enough to make investment decisions? Let’s break it down.

Understanding the PER Metric: Beyond the Number

When you hear PER, you’re actually talking about the Price/Earnings Ratio. In short: it’s the relationship between what a company costs on the stock market and what it actually earns. Simple, right?

Here’s how it works: if a company has a PER of 15, it means that its current earnings (extrapolated over 12 months) would take 15 years to “pay back” the company’s stock price. That is, you’re paying 15 times what the company earns in one year.

But here’s the interesting part: the PER doesn’t act alone. Serious analysts combine it with other fundamental metrics such as EPS (Earnings Per Share), P/BV (Price/Book Value), EBITDA, ROE, and ROA. The PER is the star of the show, but it needs its colleagues to tell the full story.

How to Calculate the PER: Two Paths to the Same Destination

The beauty of the PER is its simplicity. You have two ways to calculate it, and both give the same result:

Option 1 - Using global figures: