What’s a good price for a stock?

When you're sizing up a stock, price alone doesn’t tell you much. A $10 stock isn’t necessarily cheaper than a $100 stock — unless you know what you're getting for that price. That’s where valuation ratios come in.

These ratios compare a company’s stock price to specific financial metrics like earnings, sales or book value. Think of them as quick gut-checks that can help you spot if something looks overhyped, underloved or priced just right.

Want a summary? Jump to our quick reference table.

What it tells you

How much investors are willing to pay for a dollar of the company’s earnings.

How it works

P/E is short for Price-to-Earnings. You take the current share price and divide it by the company’s average earnings per share (EPS) over the past 12 months. A P/E of 10 means investors are paying $10 for every $1 of earnings.

What’s considered “good” or “bad”?

It depends on the company and the sector. Some industries — like tech — tend to trade at higher P/E ratios because of expected future growth. Others, like utilities or banks, tend to be lower. A “high” P/E isn’t automatically bad, and a “low” P/E isn’t automatically a bargain.

Heads-up

Earnings can swing — and so can price. A temporary pop in a stock’s price — say, because a competitor just posted blowout earnings and this company is expected to do the same — can make a stock’s P/E shoot up even if nothing has changed at the company itself. Context is everything.

Smart way to evaluate

Compare a company’s P/E to others in the same sector and to its own historical range. A spike or dip might mean something. But proceed carefully with any conclusions — it might also just be noise.

What it tells you

How a company’s market value compares to the value of what it owns — its net assets, or “book value.”

How it works

Take the current stock price and divide it by the company’s book value per share — assets minus liabilities, divided by shares outstanding. A P/B of 1.5 means investors are paying $1.50 for every $1 of net assets.

What’s considered “good” or “bad”?

It depends on the type of company. Asset-heavy businesses — like banks, insurers or real estate firms — often trade closer to their book value, so a lower P/B relative to similar companies or the company’s own history could signal either a bargain or a warning sign, if investors think the assets aren’t high quality or profitable. Tech and service companies, with fewer physical assets, tend to have higher P/Bs.

Heads-up

Book value doesn’t always reflect the real, up-to-date worth of assets. Brand value or intellectual property can change dramatically over time, and property prices can fluctuate. Sometimes, a very low P/B means investors are worried about future losses or asset write-downs.

Smart way to evaluate

Compare P/B ratios to similar companies in the same sector and look at a company’s trend over time. If a P/B drops sharply, find out why — sometimes it’s a hidden opportunity, and sometimes it’s a sign of trouble.

What it tells you

How much investors are willing to pay for each dollar the company brings in through sales.

How it works

Take the current stock price and divide it by the company’s sales or revenue per share, usually over the past year. For example, if a company generates $5 per share in sales and its stock trades at $15, the P/S ratio is 3. That means investors are paying $3 for every $1 of sales.

What’s considered “good” or “bad”?

It depends on the industry and the company’s situation. A lower P/S compared to similar companies or a company’s own history might suggest a stock is undervalued — especially useful for businesses that aren’t profitable yet. This often happens with companies early in their lifespan, when they’re focused on gaining customers and growing sales, but haven’t yet turned a profit. The P/S ratio can also help when a company is entering a new market or launching new products and is spending heavily on marketing or research. Even if profits aren’t there yet, rising sales can signal growing demand.

High-growth or high-margin industries tend to have higher P/S ratios, while mature or low-margin sectors are usually lower.

Heads-up

Sales are just the top line — this ratio doesn’t show if the company is actually making money from those sales. Some businesses bring in a lot of revenue but have thin or even negative profits. Always check profitability and margins alongside sales.

Smart way to evaluate

Use P/S to compare companies in the same industry, especially when profits are weak or negative, but sales are strong. Watch for big changes in the ratio — if it drops or jumps, see if it’s driven by shifts in sales, price changes or both.

What it tells you

Whether a stock’s price — as measured by its P/E ratio — makes sense when you factor in its expected earnings growth.

How it works

Take the P/E ratio and divide it by the company’s projected earnings growth rate, usually over the next 1 to 3 years. For example, if a company has a P/E of 20 and its expected annual earnings growth is 10%, the PEG ratio is 2 — 20 divided by 10.

What’s considered “good” or “bad”?

A PEG ratio around 1 is often seen as “fairly valued” — it suggests the stock’s price is in line with its growth prospects. Less than 1? The company might be undervalued for its growth rate. More than 1? It could be pricey, or simply that investors expect even faster growth in the future.

But there’s no universal rule — different sectors and business models have different growth profiles, and growth estimates can change quickly.

Heads-up

Growth rates are just predictions, not guarantees. Analysts may be too optimistic or pessimistic, and unexpected events can throw off forecasts. Also, some companies’ earnings can be volatile, which makes PEG less reliable.

Smart way to evaluate

Compare PEG ratios for companies in the same sector or industry. If you see a very low or high PEG, dig into the growth assumptions behind it — are they realistic, or wishful thinking? Always remember that PEG is just one tool in the kit, best used alongside other ratios and your own research.

What it tells you

How much cash flow you’d get for each dollar invested, if you buy and hold the stock — expressed as a yearly percentage.

How it works

Take the annual dividend per share — add up all payments in the past year — and divide by the current stock price. For example, if a stock pays $2 in dividends each year and trades at $40, the dividend yield is 5% — $2 ÷ $40 = 0.05, or 5%.

Note: Posted dividend yields can vary by website — some use the past year’s actual payments, and others multiply the latest announced dividend by the number of payments per year. We recommend you always compare yields using the same method.

What’s considered “good” or “bad”?

It depends on your goals and the sector. Utilities, telecoms and banks are known for higher yields because their businesses are mature and generate steady cash flow — they don’t need to reinvest as much back into growth, so they can pay more out to shareholders. Tech and other growth companies, on the other hand, usually pay little or nothing in dividends, since they often reinvest profits to expand their business. A higher yield can be appealing to income-focused investors — but beware: sometimes a high yield means the stock price has dropped for a reason, or the company might have to cut its dividend.

Heads-up

A dividend is only as good as its staying power. Companies can reduce or suspend dividends when profits fall, so don’t chase yield alone. Always check the company’s dividend history, payout ratio — how much profit is paid out as dividends — and whether earnings can comfortably support ongoing payments.

Smart way to evaluate

Compare yields to similar companies in the same sector and look for signs of stability — a track record of steady or growing dividends and reasonable payout ratios. For income, consistency usually beats chasing the highest yield.

• Price alone isn’t the full story. A stock’s price tells you very little until you see what you’re actually getting for your money.
• Valuation ratios are starting points, not final answers. Each ratio offers a different perspective, but none captures the whole picture on its own.
• Context is everything. The real value of any ratio comes from comparing it — to similar companies in the same industry, or to a company’s own history. What’s “high” or “low” depends on where you look.
• Ratios reflect both reality and perception. Sometimes a high or low ratio reveals optimism or worry in the market, not just facts about the business.
• Look beneath the surface. Numbers can highlight trends or red flags, but they rarely explain why something is priced the way it is. Digging into the story behind the numbers matters just as much.
• Use your judgment. No single metric can replace careful thinking. Ratios are there to inform your curiosity, not to make decisions for you.
• Every ratio in this article except PEG is pre-calculated for each stock and easy to find in the Investor’s Edge Stock Centre.