PE Ratio Calculator
Key Takeaway
A company's P/E ratio (Price-to-Earnings) compares its stock price to its earnings per share. The Nifty 50 long-term average P/E is ~22. A P/E above 25 suggests overvaluation; below 18 suggests undervaluation.
PE Ratio Calculator
Calculate the Price-to-Earnings valuation multiple.
P/E Ratio
30.00
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Price-to-Earnings (P/E) Ratio Formula
Measures multiple of earnings that investors pay to purchase shares of a stock, indicating relative valuation.
Worked Example: Stock trading at ₹1,200 with an EPS of ₹40
Price-to-Earnings Ratio: Evaluating stock valuation multiples
Vijay was comparing two banking stocks. Bank A was trading at ₹600 with an EPS of ₹20, while Bank B was trading at ₹900 with an EPS of ₹45. He wanted to know which stock offered better value.
He calculated the P/E ratios. Bank A had a P/E of 30.0, while Bank B had a P/E of 20.0. Even though Bank B had a higher share price, it was actually cheaper relative to its earnings power than Bank A.
The P/E ratio measures the price multiple investors pay relative to a company's earnings. A lower P/E indicates better value, assuming comparable growth.
Do not look at P/E in isolation. Cyclical industries or high-growth tech companies can have high or low P/E ratios that are justified by growth rates.
Frequently Asked Questions
What is a good P/E ratio?
There is no universal 'good' P/E. It must be compared against the historical P/E of the stock, the industry average, and the company's growth rate.
What does a high P/E ratio indicate?
A high P/E indicates that investors are willing to pay a premium for the stock, usually because they expect high future earnings growth.
Why do some stocks have a negative P/E?
A negative P/E means the company is reporting net losses (negative EPS). In this case, the P/E ratio is technically undefined or listed as 'N/A'.
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