In short
- The P/E ratio is calculated like this: price ÷ earnings per share.
- It shows how much the market pays for 1 dirham of annual profit.
- A P/E ratio alone does not say whether a share is “expensive” or “cheap”.
The calculation, with an example
P/E stands for price to earnings. In French, it is called the PER. Here is a made-up example:
| Item | Company A | Company B |
|---|---|---|
| Share price | 500 MAD | 50 MAD |
| Earnings per share | 25 MAD | 1 MAD |
| P/E ratio | 20 | 50 |
Share A costs ten times more in dirhams, but its P/E ratio is lower. The market pays 20 dirhams for 1 dirham of profit at A, and 50 dirhams at B.
Why P/E ratios differ
- Expected growth: the market may pay more if it expects profits to rise sharply.
- The sector: a bank, a mine and a healthcare group do not have the same model.
- Risk: a profit seen as fragile may be valued less.
- Interest rates: they influence the value given to future profits.
Traps to know
- An exceptional profit can lower the P/E ratio for a single year, and says nothing about what comes next.
- A collapse in profit can raise the P/E ratio, even if the price has not moved.
- A loss makes the P/E ratio unusable.
- The “expected” P/E ratio relies on forecasts, which can be wrong.
Other indicators used with the P/E ratio
The P/E ratio is only one piece of the puzzle. Analysts also look at debt, cash, the regularity of profits and the dividend yield. To find this data, read our guide to reading a listed company’s results.
This guide explains an indicator. It does not say which share to buy or sell, and no P/E level guarantees a result.
Frequently asked questions
Does a low P/E ratio mean a share is a bargain?
Not necessarily. It may reflect expected falling profits or a high risk.
Where can I find earnings per share?
In the company’s financial reports, or by dividing net profit by the number of shares.
This article is for information and educational purposes only. It is not investment advice or a recommendation to buy or sell any security. Investing in shares involves a risk of capital loss. Check figures against official sources (Casablanca Stock Exchange, AMMC) and consult a licensed professional. Read the full disclaimer.
