What Is a P/E Ratio? How UK ISA Investors Should Actually Read It

The price-to-earnings ratio is the share price divided by earnings per share (EPS). If a share costs £14 and earned £1 per share last year, the P/E is 14. Read it plainly: you are paying £14 for every £1 of annual profit the company currently makes.

That framing matters more than the formula. A P/E of 14 means a 14-year payback at today's earnings — which is why a high P/E is not automatically "expensive" and a low one is not automatically "cheap". The market is pricing the future, not the past. A P/E built on last year's reported earnings is the trailing P/E; one built on analysts' forecasts is the forward P/E. They can differ sharply for a company whose profits are about to rise or collapse.

For UK-listed shares, EPS is reported in company results and aggregated on data services; our UK stocks hub shows live fundamentals for FTSE 100 names so you can see the inputs rather than take a single ratio on trust.

Here is the same week across the FTSE 100, using real fundamentals from our stocks data:

The spread is the lesson. AstraZeneca on ~28 is not the market making a mistake — it is the market paying up for reliable, growing pharmaceutical earnings. Barclays on ~10 is not a free lunch — UK banks have traded on low P/Es for years because the market doubts the durability and growth of their profits. A low P/E frequently signals perceived risk or stagnation, not a bargain. This is the value trap: a share that stays cheap because it deserves to.

BP on ~37 shows the opposite distortion — a depressed earnings figure (the denominator) inflates the ratio even when the share looks far from richly valued. Never read a P/E without asking what happened to earnings.

Flip the P/E upside down and you get the earnings yield — EPS divided by price, the inverse of the ratio. A P/E of 10 is a 10% earnings yield; a P/E of 28 is about 3.6%. This is the single most useful thing a UK investor can do with a P/E, because it makes equities directly comparable to the risk-free alternative.

In April 2026 the UK 10-year gilt yield reached 4.82%. That is the return you can lock in with no equity risk.

AstraZeneca's 3.6% earnings yield sits below the gilt — you accept a lower current profit yield in exchange for expected growth. Barclays' 10% sits far above it — the market demands a fat risk premium because it distrusts the growth. Neither is wrong; the gap is the question the P/E is asking you to answer. For the risk-free side of that comparison, see how to actually buy UK gilts, and for the income angle our dividend yield guide is the companion read.

Three rules for UK investors:

• Never use P/E in isolation. Compare a company to its own history and to direct sector peers — a bank's P/E means nothing next to a pharma company's. It pairs naturally with the price-to-book ratio for asset-heavy businesses like banks and miners.
• Always check the E. A low P/E on collapsing earnings is a trap; a high P/E on a one-off earnings dip can be noise. Read why the denominator is what it is.
• Hold the comparison in a wrapper. Whatever you buy, holding it in a Stocks and Shares ISA means gains and dividends are sheltered — the valuation decision is hard enough without HMRC taking a slice of the upside.

FCA note: this is general information, not a recommendation to buy or sell any share. Ratios describe the past and the market's expectations; they do not predict returns, and individual shares can fall to zero.