Price-to-Earnings Ratio (P/E)

The price-to-earnings ratio, or P/E, divides a share's price by the company's earnings per share: its profit for a year, split over all its shares. A P/E of 20 means buyers pay CHF 20 for every franc of profit the company made in a year. Turned the other way round, earnings divided by price, it's the earnings yield: a P/E of 20 is an earnings yield of 5%. That's profit the company made, not money paid to you: only the dividend is paid out.

Nestlé's shares closed at CHF 76.02 on 30 September 2026. Its basic earnings per share for 2025, the latest full year it had reported, were CHF 3.51:

CHF 76.02 divided by CHF 3.51 gives a P/E of 21.7: buyers paid 21.7 times what Nestlé earned per share in 2025. The other way round, CHF 3.51 is 4.6% of CHF 76.02. Neither number says whether the share is worth its price. They only put the price next to the profit.

A P/E changes when either of its two numbers moves. A year earlier, on 30 September 2025, Nestlé's shares closed at CHF 73.07, and its latest full-year earnings, for 2024, were CHF 4.19 a share:

The price rose 4.0%, from CHF 73.07 to CHF 76.02, while earnings per share fell 16.2%, from CHF 4.19 to CHF 3.51. So the P/E went from 17.4 to 21.7 mostly because the company earned less, not because buyers paid much more. A rising P/E can come from falling profits as well as from a rising price.

Companies report more than one earnings figure. The basic figure follows the accounting rules and counts everything, write-downs included: charges for assets that turn out to be worth less than the company paid. Most large companies also publish an adjusted figure that leaves out items they see as special, under a name of their own: "underlying" at Nestlé, "core" at Novartis and Roche. Roche shows how far apart the two can be:

Mainly because of write-downs, Roche's basic earnings for 2024 were CHF 10.39 a share, against CHF 18.93 core. At CHF 259.90 for its non-voting share on 30 September 2025, its P/E was 25.0 on basic and 13.7 on core earnings. A year later, at CHF 349.10, with 2025 earnings of CHF 16.18 basic and CHF 19.63 core, it was 21.6 and 17.8. The basic P/E fell while the core P/E rose: the same share, read two ways.

The gap shows up elsewhere too, if smaller. On 30 September 2026 Nestlé's P/E was 21.7 on basic earnings and 17.2 on underlying earnings of CHF 4.42 a share. Novartis reports in US dollars; its 2025 earnings are converted at the Swiss National Bank's end-of-September 2026 rate, 0.83278 francs per dollar, so USD 7.21 basic and USD 8.98 core become CHF 6.00 and CHF 7.48. At CHF 119.96, its P/E was 20.0 on basic and 16.0 on core earnings. Each company decides itself what it leaves out, so always check which earnings a P/E is based on. A lower P/E doesn't say which share will do better.

A P/E can't tell you what comes next. It looks back at last year's profit, while the price reflects what buyers expect from the years ahead. A low P/E can mean that profits are expected to fall, a high one that they're expected to grow, and the ratio can't tell you which expectation will turn out right. P/Es also differ between industries for reasons of their own. And a P/E doesn't say when a price will move: shares can stay at a high P/E for years, one reason why timing the market rarely works. Choosing shares by their P/E is a form of active investing.

For the market as a whole, the Swiss National Bank's Financial Stability Report 2026 found that cyclically adjusted P/Es, which average earnings over ten years, "lie substantially above their long-term averages for US stocks and, to a lesser degree, for Swiss and UK stocks". That describes prices at the time. As with any P/E, it doesn't say when or whether prices will fall.