Trailing PE Ratio (PE-TTM)

The trailing price-to-earnings ratio divides a company's current share price by its earnings per share over the trailing twelve months (TTM). Often written PE-TTM, it answers a precise question: how many dollars are investors paying today for each dollar of earnings the company has actually produced over the past year? Because it uses reported, historical earnings, the trailing PE is the most factual and least assumption-dependent version of the PE ratio.

The formula

Trailing PE = Current Share Price / Trailing Twelve-Month EPS

The numerator is today's price. The denominator is the sum of the last four quarters of earnings per share.

Worked example

A stock trades at $120. Over the last four quarters it reported EPS of $1.40, $1.55, $1.60, and $1.45.

• TTM EPS = $1.40 + $1.55 + $1.60 + $1.45 = $6.00
• Trailing PE = $120 / $6.00 = 20.0

Investors are paying 20 times the company's actual trailing earnings. If a competitor trades at a trailing PE of 14 with similar growth and risk, the first stock looks more expensive on realized earnings.

Trailing versus forward PE

The trailing PE uses earnings the company has already reported; the forward PE uses analysts' estimates for the next twelve months. The two answer different questions:

• Trailing PE is factual but backward-looking. It cannot see a coming acceleration or collapse in earnings.
• Forward PE is forward-looking but only as reliable as the estimates behind it.

For a company with growing earnings, the forward PE is usually lower than the trailing PE, because the denominator (expected earnings) is larger than last year's. A trailing PE well above the forward PE signals the market expects earnings to rise. The reverse, a trailing PE below the forward PE, warns that earnings are expected to fall.

What a trailing PE tells you

A high trailing PE means investors are paying a lot for each dollar of past earnings, usually because they expect strong future growth, or because earnings are temporarily depressed. A low trailing PE can mean a cheap stock or a business the market expects to shrink. On its own the number is neutral; it only becomes a judgment when compared to the company's growth rate, its history, and its peers. A trailing PE of 25 is expensive for a no-growth utility and cheap for a company compounding earnings at 30% a year.

The negative-earnings caveat

When a company loses money, TTM EPS is negative and the trailing PE is negative or meaningless. In those cases analysts fall back on other measures such as price-to-sales, EV/EBITDA, or forward PE once profitability is expected to return. A negative trailing PE is not a signal of cheapness; it simply means the ratio does not apply.