P/E Ratio Explained With Coca-Cola and Walmart

The P/E ratio is the most quoted valuation number in investing, and the easiest one to misread. A low number gets called cheap, a high one gets called a bubble, and both reactions skip what actually matters: what's inside the earnings and how fast they're growing.

Coca-Cola and Walmart show why. Both sit in the Consumer Defensive sector, yet as of the close on Wednesday, October 21, 2026, their trailing P/E ratios were 14.9 points apart. They're examples for the concept, not a verdict on either stock.

What does the P/E ratio actually tell you?

The P/E ratio tells you how much investors pay for each dollar of a company's yearly earnings per share. Coca-Cola's $92.68 share price divided by its trailing 12-month EPS of $3.33 gives a P/E of 27.8x. Put simply, buyers at that price paid about $27.80 for every $1 of annual profit.

Walmart, at $117.80 a share and $2.76 of trailing EPS, came out at 42.7x. Our guide to the P/E ratio covers the basics, and our EPS explainer covers the number underneath it.

A handy trick: flip it. One divided by the P/E is the earnings yield, the profit you're buying per dollar invested. That's about 3.6% for Coca-Cola and 2.3% for Walmart, which reads more like a return you can weigh against other uses of your money.

Trailing vs forward P/E: which one should you use?

Use both, because they answer different questions. Trailing P/E divides the price by the last 12 months of actual EPS. Forward P/E divides it by analysts' estimate for the next fiscal year. For Walmart, that's the difference between 42.7x on $2.76 of trailing EPS and 36.5x on a $3.22 forward estimate.

As of October 21, 2026 close	Coca-Cola (KO)	Walmart (WMT)
Share price	$92.68	$117.80
Trailing EPS	$3.33	$2.76
Trailing P/E	27.8x	42.7x
Forward EPS estimate	$3.52	$3.22
Forward P/E	26.3x	36.5x
Expected EPS growth	5.7%	16.7%

The gap between the two is a growth signal. Coca-Cola's forward P/E is only 1.5 points below its trailing number because the consensus estimate sits just 5.7% above trailing EPS. Walmart's drops 6.2 points because analysts expect a much bigger step up.

Here's the thing, though. Trailing EPS is a fact and forward EPS is an opinion. Walmart's earnings in its latest quarter were down 9.1% from the same quarter a year earlier, so that 36.5x leans on a rebound the most recent results haven't shown yet. If the estimate slips, the forward P/E climbs without the price moving at all.

Why isn't a low P/E automatically cheap?

Because the P/E compares price to just one year of profit, and that profit can be flattered or depressed. Coca-Cola's 27.8x is well below Walmart's, but part of the reason is a jump in earnings: net income rose 23.3% in fiscal 2025 while revenue grew only 1.9%, according to the company's annual income statements.

Ask where the bigger "E" came from

When profit grows more than ten times faster than sales, margins did the work. Coca-Cola's operating margin went from 21.2% in fiscal 2024 to 28.7% in fiscal 2025. That's a big swing for a business this size.

Margins can hold or drift back, and the income statement doesn't say which. If they slipped, the same share price would mean a higher P/E. The low multiple is only as solid as the margin under it.

Ask whether the earnings turned into cash

Coca-Cola reported $13.11 billion of net income in fiscal 2025 but $5.30 billion of free cash flow. In fiscal 2024 it was $10.63 billion of profit against $4.74 billion of free cash flow. The annual figures don't explain the gap, but a P/E built on earnings that aren't showing up as cash deserves a closer look. Our free cash flow walkthrough shows how to run that check.

In the chart below, look at how free cash flow stepped down in fiscal 2024 while reported profit held up.

How does growth change what a fair P/E looks like?

Faster earnings growth justifies a higher multiple, because each year of growth shrinks the P/E you're effectively paying on future profit. Walmart's diluted EPS went from $1.62 in fiscal 2022 to $2.73 in fiscal 2026, about 13.9% a year. Coca-Cola's went from $2.25 in fiscal 2021 to $3.04 in fiscal 2025, about 7.8% a year.

Walmart's path wasn't a straight line. EPS dipped to $1.42 in fiscal 2023, then climbed for three straight years. Watch for that dip and recovery in the chart.

A quick way to put price and growth on one scale is to divide the P/E by the annual EPS growth rate, often called the PEG ratio. Using those historical rates, Coca-Cola comes out around 3.6 and Walmart around 3.1. The stock that looked far pricier on P/E is roughly level, even a touch cheaper, once growth enters the math.

Now look at where Walmart's growth came from. Revenue compounded at 5.6% a year from fiscal 2022 to fiscal 2026, almost identical to Coca-Cola's 5.5%. The extra EPS growth came from net margin edging up from 2.4% to 3.1% and diluted shares falling from 8.41 billion to 8.02 billion.

Both levers are real, but neither runs forever, so past growth is a starting point, not a promise. Our growth versus value guide goes deeper on how markets price that. Below, see how wide P/E ratios range across large caps and how much of that spread tracks expected growth.

What should you check alongside the P/E ratio?

Check price-to-sales, margins and cash flow, because a P/E can hide what's underneath. Walmart trades at just 1.3x trailing sales while Coca-Cola sits at 8.0x. The difference is margins: over the trailing 12 months, Coca-Cola kept 28.6 cents of net profit per sales dollar and Walmart kept about 3 cents.

That thin margin makes Walmart's P/E jumpier. When a company keeps 3 cents on the dollar, a small change in costs moves EPS a lot. Our price-to-sales guide explains when that ratio is the better lens.

A single ratio is a poor place to stop. A structured check puts valuation next to growth, profitability and the balance sheet, which you can see with a free Stock Audit on Coca-Cola or a Stock Audit on Walmart.

How to use this in your own research

Treat the P/E as a starting question, not an answer. This checklist works on any stock:

• Do the math yourself. Price divided by trailing EPS. If it doesn't match the quoted figure, find out which EPS the source used.
• Compare trailing and forward. A big gap means analysts expect growth, so check whether the latest quarter supports it.
• Find the source of the "E". If profit grew far faster than revenue, margins did the work. Ask if they can hold.
• Check the cash. Put free cash flow next to net income for the same year.
• Adjust for growth. Divide the P/E by the EPS growth rate before calling anything cheap or expensive.

Each earnings report resets trailing EPS, so the P/E moves even when the price doesn't. Coca-Cola's next report is scheduled for Tuesday, October 27, 2026, and Walmart's for Thursday, November 19, 2026, per Yahoo Finance's earnings calendar (dates can be estimates until confirmed). For Coca-Cola, see whether margins hold as EPS moves toward the $3.52 estimate. For Walmart, see whether earnings return to growth after that 9.1% quarterly decline. Our 30-minute stock audit framework and the 30-Minute Stock Audit Guide walk through the full process.

Frequently Asked Questions

What is a good P/E ratio?

There isn't a universal good P/E. A fair multiple depends on how fast earnings grow, how dependable they're and how well profit turns into cash. A slow grower can be expensive at a P/E that would be reasonable for a fast grower. The more useful test is whether the multiple makes sense next to the company's growth rate, its closest peers and its own past valuation, not a fixed rule of thumb.

Is forward P/E more reliable than trailing P/E?

Not more reliable, just more forward-looking. It depends on analysts' estimates, which can miss in either direction. Both examples have recently topped estimates: Coca-Cola reported $0.97 of EPS against a $0.93 consensus in the quarter announced July 28, 2026, and Walmart reported $0.81 against $0.74 in the quarter announced August 20, 2026. A record of beats doesn't guarantee the next one.

Why does a P/E change when the stock price doesn't?

Because the earnings side updates every quarter. Trailing EPS covers the latest four quarters, so each report drops the oldest quarter and adds the newest. That's why Coca-Cola's trailing EPS of $3.33 is already above its fiscal 2025 diluted EPS of $3.04. If earnings rise and the price stays flat, the P/E falls. If earnings dip, it rises.

Does a high P/E mean a stock is overvalued?

Not on its own. A high P/E means the market expects a lot, so the risk is that growth disappoints. The multiple can also rise simply because the price outruns earnings. Coca-Cola's shares rose 30.1% in the year to October 21, 2026, about double the S&P 500's 15.2%, which lifts the P/E unless earnings keep pace.