P/E ratio (price-to-earnings)
How many rupees investors pay for one rupee of annual profit.
Fundamental ratios
Live NSE examples below
What is P/E ratio?
The price-to-earnings ratio divides a company's share price by its earnings per share, or equivalently its market capitalisation by its annual net profit. A P/E of 20 means investors pay ₹20 for every ₹1 of yearly profit, or, turned around, the company earns 5% of its price each year (the earnings yield). It is the most quoted valuation number, and also the most misused.
Formula
P/E = share price ÷ EPS = market cap ÷ net profit (trailing 12 months)
Earnings yield = 1 ÷ P/E
Flash Finance: market cap uses the latest close × current share count; profit is the sum of the last four reported quarters
How to read it
- Compare P/E with the company's own history and its industry median, not with an absolute 'cheap' number.
- High P/E usually prices in high expected growth; low P/E often prices in expected decline.
- Cyclical companies look cheapest (low P/E) at the top of their profit cycle, which is often the worst time to buy them.
Common mistakes
- Comparing a bank's P/E with a software company's.
- Using P/E for loss-making companies. It is meaningless when earnings are negative.
Live: NSE stocks matching this today
Profitable companies with P/E below 12 143
| Stock | P/E | Industry P/E | ROE |
|---|---|---|---|
| MUKANDLTDMukand Limited | 3.20 | 18.10 | 40.3% |
| 532468Kama Holdings Ltd | 3.33 | 10.20 | 27.1% |
| PFCPower Finance Corporation Limited | 3.38 | 18.40 | 25.3% |
| VEDLVedanta Limited | 3.56 | 9.80 | 57.5% |
| SETLStandard Engineering Technology Limited | 3.75 | 48.70 | — |
| 539533Elitecon International Ltd | 3.89 | 4.60 | 97.1% |
| BBTCThe Bombay Burmah Trading Corporation Limited | 4.14 | 24.20 | 35.5% |
| CHOLAHLDNGCholamandalam Financial Holdings Limited | 4.60 | 18.40 | 38.9% |
Stocks cheaper than their industry P/E 112
| Stock | P/E | Industry P/E | ROE |
|---|---|---|---|
| DCMSHRIRAMDCM Shriram Limited | 10.63 | 63.40 | 18.6% |
| BBTCThe Bombay Burmah Trading Corporation Limited | 4.14 | 24.20 | 35.5% |
| BLUEDARTBlue Dart Express Limited | 39.73 | 194.00 | 16.2% |
| PHOENIXLTDThe Phoenix Mills Limited | 44.86 | 203.80 | 14.0% |
| 532485Balmer Lawrie Investments Ltd | 5.30 | 22.10 | 19.6% |
| HMAAGROHMA Agro Industries Limited | 5.58 | 22.00 | 22.9% |
| GIPCLGujarat Industries Power Company Limited | 5.84 | 22.60 | 13.1% |
| UTIAMCUTI Asset Management Company Limited | 10.11 | 34.90 | 26.1% |
Use it on Flash Finance
Frequently asked questions
What is a good P/E ratio for Indian stocks?
The Nifty 50 has spent most of the last decade between roughly 18 and 26 times trailing earnings, with brief excursions outside that range. A 'good' P/E depends on growth and return on capital: a company compounding profits at 25% with 30% ROE can justify a much higher multiple than a slow-growing utility.
Related concepts
PEG ratioP/E divided by the profit growth rate, to compare fast and slow growers.P/B ratio (price-to-book)Market value compared with the accounting value of shareholders' equity.ROE (return on equity)Annual profit as a percentage of the shareholders' money in the business.Dividend yieldThe annual dividend per share as a percentage of the share price.
