Price-Earnings Relative

Written By
Paul Tracy
Updated September 29, 2021

What is the Price-Earnings Relative?

The price-earnings relative is a comparison of a stock's P/E ratio to the cumulative P/E ratio of a related market index.

How Does the Price-Earnings Relative Work?

The price-earnings relative considers the P/E of a given stock relative to the P/E ratio for a comparable market index, such as the Dow Jones or S&P 500. The formula for price-earnings relative is:

Price-Earnings Relative = Stock P/E ratio / Index P/E ratio

As a method of performance measurement, a price-earnings relative of less than 1.0 indicates that the stock had poorer earnings performance than the overall market, while a value of greater than 1.0 means that the stock performed more strongly than the overall market. A stock that tracked exactly the market's earnings performance would have a price-earnings relative equal to 1.0.

For example, if the P/E ratio for a given stock was 0.85 and the P/E for the S&P 500 was 1.1 for the same period, the price-earnings relative would be 0.85 / 1.1 = 0.77, meaning that it did not perform as well as the overall market.

Why Does the Price-Earnings Relative Matter?

The price earnings relative helps to assess whether or not a stock's performance was adequate given overall market performance.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Price-Earnings Relative.
Be the first to ask a question

If you have a question about Price-Earnings Relative, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Price-Earnings Relative, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Price-Earnings Relative

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms