The trailing price-to-earnings (P/E) ratio is one of the most widely used—yet frequently misunderstood—metrics in the Australian share market. As we move through 2025, with the ASX’s volatility and regulatory changes reshaping how investors value companies, understanding the trailing P/E is more critical than ever. Whether you’re weighing up blue chips or scanning for growth stocks, knowing how to interpret this ratio can give you a distinct edge.
What Is the Trailing P/E Ratio?
The trailing P/E ratio measures a company’s current share price relative to its earnings per share (EPS) over the previous 12 months. Unlike forward P/E ratios, which use forecasted profits, the trailing P/E is rooted in actual, reported numbers—making it a reliable snapshot of valuation based on real performance.
- Formula: Trailing P/E = Current Share Price ÷ EPS (past 12 months)
- Example: If BHP’s share price is $48 and its trailing 12-month EPS is $4, the trailing P/E is 12.
This ratio helps investors gauge whether a stock is overvalued or undervalued compared to its earnings history, industry peers, or the broader market.
Why Trailing P/E Matters in 2025
Australian investors are navigating a market shaped by higher interest rates, evolving tax policy, and renewed scrutiny on corporate transparency. The trailing P/E ratio offers several advantages in this environment:
- Grounded in Reality: By relying on actual earnings, the trailing P/E avoids optimistic projections that can skew forward-looking ratios, especially in uncertain times.
- Comparability: Investors can benchmark companies within the same sector or against the ASX 200 average—currently hovering around 18x in early 2025, up from 16x a year ago as earnings recover post-pandemic.
- Regulatory Impact: With ASIC’s 2025 financial reporting standards tightening on earnings quality and disclosure, trailing P/E ratios are becoming more trustworthy for retail investors seeking transparency.
For example, Commonwealth Bank (CBA) recently reported a 10% jump in trailing EPS, pushing its P/E down despite a rising share price—signalling improved value relative to historical averages.
How to Use Trailing P/E Wisely
While the trailing P/E is powerful, context is everything. Here’s how savvy investors are using it in 2025:
- Industry Differences: Tech stocks on the ASX often command higher trailing P/Es (think 30–40x) due to growth expectations, while utilities may sit below 15x. Compare apples with apples.
- Growth vs. Value: A low trailing P/E might indicate a bargain or signal underlying problems—like falling earnings or a one-off profit bump. Scrutinise the earnings trend, not just the headline number.
- Market Timing: With global inflation stabilising, investors are favouring companies with stable earnings and reasonable P/Es. In 2025, ASX-listed healthcare firms, many trading at 22–25x trailing P/E, are attracting defensive capital flows.
- Dividends and P/E: Australian franking credits make dividend stocks with solid trailing P/Es particularly appealing for SMSFs and retirees seeking tax-effective income.
Practical tip: Pair the trailing P/E with other metrics—like price-to-book (P/B) or return on equity (ROE)—to build a more complete picture of value.
2025 Policy Updates and Market Trends
This year, ASIC has rolled out new guidelines requiring listed companies to clarify adjustments made to earnings figures in annual reports. This move aims to curb ‘earnings smoothing’ and bolster investor confidence in trailing P/E calculations. Meanwhile, the ATO’s review of franking credit eligibility rules means more scrutiny on companies’ payout ratios, indirectly influencing trailing P/E relevance for income investors.
At a macro level, the Reserve Bank of Australia’s steady cash rate (currently at 4.35%) is shifting market focus from speculative growth to established earners with attractive trailing P/Es. Sectors like consumer staples and financials are seeing renewed interest as investors seek earnings reliability.
Conclusion: Is Trailing P/E Still Relevant?
Absolutely. While no single ratio tells the whole story, the trailing P/E remains a vital tool for Australian investors in 2025. Used in context, it can help you spot value, avoid hype, and make smarter, evidence-based decisions—whether you’re building wealth or protecting it.
