Complete Guide to PER, PBR, ROE
— the 3 Basic Valuation Metrics for Judging Under- and Overvaluation
PER, PBR, and ROE are the 3 valuation musketeers that measure a company's value from different angles. We cover everything from the formulas to sector benchmarks and practical traps in one place.
The 3 Metrics at a Glance
| Metric | Formula | Meaning | General Benchmark |
|---|---|---|---|
| PER (Price-to-Earnings Ratio) | Share price ÷ EPS | How many times current earnings you're paying | S&P 500 average 15–25x 30x+ common for growth stocks |
| PBR (Price-to-Book Ratio) | Share price ÷ BPS (book value per share) | How many times liquidation value | Under 1 = below liquidation value 5–20x common for tech stocks |
| ROE (Return on Equity) | Net income ÷ equity × 100 | How much profit per dollar of its own capital | 15%+ is the blue-chip target structurally high for financials/utilities |
PER — How Many Years of Earnings You're Paying For
PER (Price-to-Earnings Ratio) shows how many times the current share price is relative to annual EPS (earnings per share). A PER of 20 means "at this earnings pace, it would take 20 years to recoup your investment through net income."
- Comparing within the same sector is the key — a PER of 12–18 is normal for a utility (stable growth), while 25–40+ is normal for big tech
- Forward PER (based on expected earnings) matters more in practice — past earnings (Trailing PER) are already old news
- Watch out for a Value Trap — if a low PER is due to "an expected earnings decline," it isn't actually undervalued
A version that accounts for growth speed is PEG (= PER ÷ growth rate %). A PEG of 1 or below is read as undervalued relative to growth.
PBR — How Many Times Book Value You're Buying At
PBR (Price-to-Book Ratio) is the share price divided by book equity (net assets). A PBR of 1 theoretically means "you're buying at the same price you'd get back if the company liquidated."
- A PBR under 1 = theoretically below liquidation value — common for financial stocks, but it can also signal weak earnings power
- IT and platform companies have structurally high PBR because intangible assets (brand, patents, network) don't show up on the balance sheet
- Looking at PBR alone ignores sector character — a relative comparison within the same sector is essential
ROE — How Much It Earns With Its Own Money
ROE (Return on Equity) shows how much profit a company generates relative to shareholder capital. An ROE of 20% means it earned $20 for every $100 of equity.
- 15% or above is often used as the blue-chip benchmark (Buffett: "an ROE of 15%+ for 10+ years")
- Debt leverage can inflate ROE — you need to check the debt-to-equity ratio (D/E) alongside it
- ROE drives PBR — this is why a company that sustains a high ROE also maintains a high PBR
Reference PER Ranges by Sector
| Sector | Typical PER Range | Why |
|---|---|---|
| Tech/growth stocks | 25–50x+ | High expectations for future earnings |
| Financials/banks | 8–15x | Stable earnings, limited growth |
| Utilities | 12–20x | A regulated, dividend-focused industry |
| Healthcare | 15–30x | A mix of growth and defensiveness |
| Energy | Oil-price sensitive, 10–20x | A cyclical industry |
How to Look at All Three Together
The typical pattern for a good company: ROE stays consistently high → PBR is high too → but PER is reasonable relative to earnings growth. Conversely, a low PER plus a low ROE plus a PBR under 1 might not simply mean undervalued — it could signal a declining business.
Check It Right Now
On today's scan, you can see how each stock's earnings data combines with its technical signals. See also reading EPS and understanding market cap.