What is Price-to-Earnings Ratio (P/E)?
The price-to-earnings ratio (P/E) is a valuation multiple comparing a company’s share price to its earnings per share, indicating how much investors are willing to pay today for each riyal of annual earnings.
How It Works
- Formula: P/E = market share price / earnings per share.
- Trailing P/E uses last 12 months of earnings.
- Forward P/E uses projected next 12 months earnings.
- Higher P/E may signal growth expectations or overvaluation.
Saudi Context
On Tadawul, typical sector P/E ratios are: banks 10-15x, telecoms 12-18x, petrochemicals 15-25x, real estate 12-20x, food and beverage 18-30x. The PIF and Saudi institutional investors compare P/E against regional and global peers when evaluating Tadawul-listed equities for portfolio inclusion.
Example
A Tadawul-listed company trades at SAR 90 per share with EPS of SAR 6. P/E = 90 / 6 = 15x, meaning investors pay SAR 15 for each SAR 1 of annual earnings.