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Stock investors often rely on fundamental ratios to evaluate whether a company’s shares are attractively valued, fairly priced, or overvalued. Among the most widely used are the Price-to-Earnings (P/E) ratio, Price-to-Sales (P/S) ratio, Price-to-Earnings Growth (PEG) ratio, and Price-to-Book (P/B) ratio. Each of these measures captures a different perspective on valuation, and together they help investors build a more complete picture of a company’s financial standing and future prospects.

The P/E ratio is perhaps the most common valuation tool. It compares a company’s stock price to its earnings per share (EPS), essentially showing how much investors are willing to pay for each dollar of profit. A higher P/E ratio generally suggests that investors expect stronger future growth, while a lower P/E ratio may indicate undervaluation or weaker growth expectations. As regards to determining undervaluation, a P/E of less than 15 is good.

Within the P/E category, there is an important distinction between the trailing P/E and the forward P/E. The trailing P/E is based on the company’s actual earnings over the past twelve months, making it a snapshot of current profitability relative to stock price. By contrast, the forward P/E uses analysts’ earnings forecasts for the next twelve months, offering a more forward-looking perspective. While the forward P/E can highlight growth potential, it also carries greater risk of inaccuracy since it depends on estimates rather than historical data.

The Price-to-Sales ratio, or P/S ratio, provides another lens for valuation. Instead of focusing on profits, which can be influenced by accounting choices and one-time charges, the P/S ratio compares a company’s stock price to its revenue per share. This makes it especially useful for evaluating companies that are not yet profitable or are experiencing earnings volatility, such as startups or firms in cyclical industries. A lower P/S ratio may suggest that a stock is undervalued relative to its sales, though it should be interpreted in the context of profit margins and industry standards. A P/S ratio of less than 1 is considered good in terms of undervaluation of a stock.

The PEG ratio adds another layer of nuance by combining the P/E ratio with expected earnings growth. It divides a company’s P/E ratio by its projected annual earnings growth rate, providing a measure of whether the stock’s valuation is justified by its growth prospects. A PEG ratio of 1.0 is often seen as “fair value,” with higher numbers suggesting that investors are paying a premium for growth and lower numbers signaling potential undervaluation. The PEG ratio is particularly helpful for growth stocks, where high P/E ratios might otherwise appear expensive without considering the company’s future earnings potential.

The Price-to-Book ratio, or P/B ratio, compares a company’s stock price to its book value per share, which represents the net asset value of the company recorded on its balance sheet. This ratio is especially relevant for industries with significant tangible assets, such as financial institutions, real estate, and manufacturing. A P/B ratio below 1.0 can indicate that a stock is trading for less than the value of its assets, potentially signaling a bargain. However, in asset-light industries like technology, where intangible assets such as intellectual property drive value, the P/B ratio may be less meaningful.

Here are three companies all of which have all favorable ratios:

(MOS) The Mosaic Company

• Trailing P/E: ~11.6
• Forward P/E: Lower, roughly 10.8. This reflects analysts’ estimates of future earnings being higher than what was earned in the past twelve months. 
• P/S (Price-to-Sales): Trailing P/S is about 0.96, forward P/S about 0.76.
• P/B (Price-to-Book): MOS has a P/B of roughly 0.87. That is, the stock is trading below book value per share.
• PEG: MOS’s PEG ratio is approximately 0.88. That means relative to its expected earnings growth, the stock appears modestly undervalued (a PEG below 1 is often seen as potentially favorable, depending on growth risk, etc.).

Interpretation for MOS: The forward P/E being lower than the trailing P/E suggests that earnings are expected to improve. Combined with a PEG under 1, and a P/B less than 1, it may indicate the market is not fully pricing in MOS’s growth or is cautious for some reason (commodity price risk, fertilizer demand, regulatory risk, etc.). The P/S near 1 also means price is roughly equivalent to sales, but profitability margins will matter a lot in assessing how attractive that is.

(GT) Goodyear Tire & Rubber

• Trailing P/E: ~ 6.0.
• Forward P/E: ~ 6.36. This is higher than its trailing P/E, suggesting that earnings are expected to be lower (or the growth is not strong) or that recent earnings were unusually good or a one-off.
• P/S: Very low, around 0.13 trailing and forward.
• P/B: ~ 0.48. The stock is trading well below its book value per share.
• PEG: ~ 0.41 according to one source.

Interpretation for GT: Goodyear’s low trailing P/E, low P/S, and fairly low P/B suggest the market is strongly discounting its earnings prospects or anticipating trouble. The fact that forward P/E is higher than trailing P/E might suggest either earnings are expected to decline or that trailing earnings were boosted in the recent period. A PEG of ~0.48 might look attractive on its face, but one must question whether the growth assumptions underlying that PEG are realistic. For cyclical and capital-intensive businesses like tire manufacturing, external factors (rubber prices, labor costs, supply chain, demand cycles) can cause big swings.

(BFH) Bread Financial Holdings

• Trailing P/E: ~ 10.8
• Forward P/E: 7.0
• P/S: 0.63
• P/B: 0.94
• PEG: 0.97

Interpretation for BFH: With a trailing P/E of about 10.6×, BFH is not extremely expensive on a historical earnings basis, and with a much lower forward P/E, further earnings growth is expected.

These examples illustrate how the fundamental ratios give different lenses — trailing vs forward P/E to see past vs expected earnings; P/S when profits might be volatile; P/B when assets matter; PEG to combine valuation with growth.

Taken together, these four fundamental ratios—P/E, P/S, PEG, and P/B—help investors analyze stocks from multiple angles, balancing current profitability, revenue generation, growth potential, and underlying asset value. None of them should be used in isolation, as industries and business models vary widely, but when combined they form a powerful toolkit for making informed investment decisions.

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