I’ve been in the markets for years, and there’s one thing I see many beginner traders ignore: the per, without exaggeration, is the most important tool in fundamental analysis. It’s not magic, but it’s also not complicated. Let me explain why.

Basically, when we talk about per, we’re talking about how many times a company’s annual profit is reflected in its stock price. Price to Earnings Ratio, to be exact. That is: if a company has a per of 15, its current earnings (projected over 12 months) would take 15 years to pay for what it costs on the stock market. Sounds simple, but here’s where it gets interesting.

The formula is simple: you take the market capitalization and divide it by the net profit. Or, if you prefer it per share, stock price divided by earnings per share. Any financial platform will show it to you, although on American websites you’ll see it as P/E rather than per.

Now, not all per are the same. I’ve seen companies with extremely low per that were on the brink of bankruptcy, and others with very high per that kept growing. That’s why the first thing you need to understand is that the per doesn’t work on its own. You need context.

Let’s look at two extremes: ArcelorMittal, the steelmaker, usually has a per around 2–3. Zoom, by contrast, after the pandemic went on to reach a per of 200+. Does that mean Zoom was a steal? No. It means the sectors are different. Banking, industry, metallurgy... all naturally have low per. Technology and biotechnology are sectors that, by nature, have higher per.

This is crucial: never compare the per of a construction company with the per of a tech company. It’s like comparing pears and apples. Always compare within the same sector, within the same geography—so they have the same market conditions.

The typical interpretation you see everywhere is: per between 10 and 17 is the optimal zone; low per (0–10) can be a bargain but also a red flag; high per (17–25) could be a bubble or legitimate growth; and per above 25 is pure speculation or brutal expectations.

But here’s what most people miss: the per is a static snapshot. It only shows you one moment. That’s why some talk about Shiller’s per, which uses average earnings over 10 years adjusted for inflation. The idea is better, but it also has detractors. Or the normalized per, which adjusts for debt and uses free cash flow instead of net profit. It all depends on what you want to see.

What I’ve learned is that the per is just one piece of the puzzle. If you only invest based on a low per, you’re going to lose money. There are companies with low per that are in free fall because their management is terrible. The story is full of cases like that. That’s why I always combine the per with other ratios: BPA, ROE, ROA, and price-to-book value. Then I dig into the company’s inner workings and see what’s really going on with its business.

Value investors—those who look for good companies at a good price—live by the per. They look for funds with per that are consistently low, comparable to their sector, and look for opportunities there. It makes sense.

My recommendation: use the per as a compass, not as a map. It’s quick to calculate, easy to compare between companies in the same sector, and it’s one of the three ratios that every serious analyst checks. But never, ever make an investment decision based only on the per. Spend 10 minutes really understanding what’s happening in that company. That’s where the real opportunities are.