The PE ratio (PE) is the most common tool for checking the valuation of a stock. It’s calculated by dividing the stock price by the company’s last 12 months earnings per share (EPS).
When it comes to analyzing and evaluating stocks, one of the most commonly used metrics is the price-to-earnings (P/E) ratio. Also, the lower the PE, the cheaper is the stock. Investors look at the PE to decide if a stock is overvalued or undervalued.
First, let’s define the P/E ratio. The P/E ratio is calculated by dividing a company’s stock price by its earnings per share (EPS).
Price to Earnings Ratio = Stock Price / TTM Earnings Per Share (EPS)
The Price/Earnings ratio measures the relationship between a company’s stock price and its earnings per share. The higher the ratio, the more expensive the stock.
High PE Stocks in India
The average P/E ratio varies significantly by industry. Here is a table showing average PE ratios by industries as of:
| Company | CMP (Rs) | P/E (x) | MCap (Rs m) | RoE (5 yrs, Avg. %) | Profit CAGR (3 yrs, %) |
|---|---|---|---|---|---|
| ZOMATO | 322.5 | 1,655.5 | 3,112,238 | 0.7% | NM |
| JIO FINANCIAL SERVICES | 307.0 | 152.7 | 1,950,097 | 3.2% | 112.5% |
| CG POWER & INDUSTRIAL | 746.2 | 110.5 | 1,175,086 | 32.7% | 15.6% |
| TRENT | 4,711.4 | 109.6 | 1,674,826 | 16.2% | 254.0% |
| AVENUE SUPERMARTS | 4,165.0 | 99.2 | 2,710,303 | 12.2% | 22.0% |
| MAX HEALTHCARE INSTITUTE | 1,150.5 | 97.5 | 1,118,558 | 9.8% | 21.2% |
| SOLAR INDUSTRIES | 14,150.1 | 95.8 | 1,280,443 | 25.8% | 41.4% |
| ADANI GREEN ENERGY | 1,108.4 | 94.7 | 1,825,730 | 24.2% | 60.0% |
| TITAN | 3,726.0 | 89.1 | 3,307,847 | 26.1% | 14.9% |
| HDFC LIFE INSURANCE | 737.7 | 84.0 | 1,590,437 | 11.6% | 10.9% |
| TATA CONSUMER | 1,198.0 | 83.9 | 1,185,474 | 7.5% | 8.6% |
| NESTLE | 1,267.0 | 81.6 | 2,443,174 | 80.8% | 10.3% |
| SBI LIFE INSURANCE | 1,966.6 | 80.4 | 1,971,650 | 13.7% | 17.0% |
| DLF | 780.5 | 78.5 | 1,931,981 | 3.4% | 47.3% |
| DIVIS LABORATORIES | 6,786.2 | 78.1 | 1,801,523 | 17.5% | NM |
| APOLLO HOSPITALS | 7,826.7 | 70.5 | 1,125,359 | 14.0% | 11.0% |
| ASIAN PAINTS | 2,505.5 | 68.7 | 2,403,270 | 24.5% | 6.3% |
| BAJAJ HOLDINGS & INVESTMENT | 12,131.0 | 66.5 | 1,350,102 | 10.8% | 17.2% |
| PIDILITE INDUSTRIES | 1,463.0 | 66.2 | 1,488,916 | 19.9% | 20.2% |
| GODREJ CONSUMER | 1,178.6 | 66.2 | 1,205,778 | 12.3% | 1.3% |
| CUMMINS INDIA | 4,360.6 | 64.4 | 1,208,758 | 21.1% | 28.9% |
| BRITANNIA | 5,814.7 | 63.4 | 1,400,565 | 56.3% | 12.8% |
| ABB INDIA | 5,259.9 | 62.0 | 1,114,617 | 17.6% | 52.1% |
| TORRENT PHARMA | 3,618.8 | 61.2 | 1,224,766 | 20.8% | 35.0% |
| TVS MOTORS | 3,511.5 | 58.9 | 1,668,268 | 22.0% | 47.6% |
Average P/E Ratio by Industry
| Industry | Average P/E ratio | Number of companies |
|---|---|---|
| Advertising Agencies | 24.96 | 27 |
| Aerospace & Defense | 34.66 | 57 |
| Agricultural Inputs | 15.47 | 10 |
| Airlines | 16.18 | 13 |
| Aluminum | 16.81 | 4 |
| Apparel Manufacturing | 18.88 | 15 |
| Apparel Retail | 17.26 | 29 |
| Asset Management | 12.62 | 83 |
| Auto Manufacturers | 7.83 | 17 |
| Auto Parts | 18.08 | 44 |
| Auto & Truck Dealerships | 15.8 | 20 |
| Banks – Diversified | 14.2 | 5 |
| Banks – Regional | 13.01 | 286 |
| Beverages – Non-Alcoholic | 26.43 | 12 |
| Biotechnology | 19.53 | 470 |
| Broadcasting | 11.54 | 10 |
| Building Materials | 22.62 | 10 |
| Building Products & Equipment | 24.26 | 27 |
| Business Equipment & Supplies | 13 | 5 |
| Capital Markets | 19.55 | 48 |
| Chemicals | 11.65 | 15 |
| Communication Equipment | 28.36 | 43 |
| Computer Hardware | 21.35 | 29 |
| Conglomerates | 24.56 | 16 |
| Consulting Services | 24 | 14 |
| Copper | 24.79 | 4 |
| Credit Services | 11.27 | 41 |
| Diagnostics & Research | 28.84 | 46 |
| Discount Stores | 28.15 | 8 |
| Drug Manufacturers – General | 20.74 | 14 |
| Drug Manufacturers – Specialty & Generic | 21.73 | 48 |
| Education & Training Services | 20.73 | 19 |
| Electrical Equipment & Parts | 23.2 | 39 |
| Electronic Components | 40.64 | 36 |
| Electronic Gaming & Multimedia | 20.16 | 12 |
| Electronics & Computer Distribution | 17.82 | 8 |
| Engineering & Construction | 35.1 | 36 |
| Entertainment | 34.72 | 35 |
| Farm & Heavy Construction Machinery | 18.15 | 19 |
| Farm Products | 24.1 | 14 |
| Financial Data & Stock Exchanges | 24.11 | 11 |
| Food Distribution | 30.31 | 10 |
| Footwear & Accessories | 20.26 | 9 |
| Furnishings, Fixtures & Appliances | 16.63 | 25 |
| Gambling | 21.4 | 9 |
| Gold | 30.27 | 31 |
| Grocery Stores | 14.91 | 9 |
| Healthcare Plans | 14.93 | 10 |
| Health Information Services | 37.17 | 40 |
| Home Improvement Retail | 22.34 | 8 |
| Household & Personal Products | 22.6 | 24 |
| Industrial Distribution | 29.28 | 17 |
| Information Technology Services | 24.16 | 49 |
| Insurance Brokers | 19.96 | 13 |
| Insurance – Diversified | 11.44 | 9 |
| Insurance – Life | 14.72 | 15 |
| Insurance – Property & Casualty | 13.21 | 36 |
| Insurance – Reinsurance | 12.42 | 8 |
| Insurance – Specialty | 10.92 | 20 |
| Integrated Freight & Logistics | 20.8 | 17 |
| Internet Content & Information | 26.37 | 45 |
| Internet Retail | 24.27 | 26 |
| Leisure | 19.58 | 23 |
| Lodging | 25.49 | 8 |
| Marine Shipping | 14.21 | 24 |
| Medical Care Facilities | 20.26 | 38 |
| Medical Devices | 28.97 | 108 |
| Medical Distribution | 28.88 | 6 |
| Medical Instruments & Supplies | 31.71 | 42 |
| Metal Fabrication | 23.09 | 15 |
| Mortgage Finance | 12.54 | 14 |
| Oil & Gas Drilling | 16.44 | 8 |
| Oil & Gas E&P | 11.68 | 60 |
| Oil & Gas Equipment & Services | 17.68 | 42 |
| Oil & Gas Integrated | 18.86 | 6 |
| Oil & Gas Midstream | 14.66 | 36 |
| Oil & Gas Refining & Marketing | 23.04 | 17 |
| Packaged Foods | 18.36 | 45 |
| Packaging & Containers | 20.08 | 20 |
| Personal Services | 23.66 | 10 |
| Pollution & Treatment Controls | 32.11 | 12 |
| Railroads | 18.72 | 8 |
| Real Estate – Development | 8.17 | 8 |
| Real Estate Services | 30.14 | 30 |
| Recreational Vehicles | 26.61 | 11 |
| REIT – Diversified | 25.77 | 16 |
| REIT – Healthcare Facilities | 24.01 | 16 |
| REIT – Hotel & Motel | 24.58 | 14 |
| REIT – Industrial | 27.64 | 17 |
| REIT – Mortgage | 13.54 | 40 |
| REIT – Office | 34.09 | 21 |
| REIT – Residential | 28.05 | 20 |
| REIT – Retail | 26.5 | 26 |
| REIT – Specialty | 26.46 | 19 |
| Rental & Leasing Services | 19.51 | 18 |
| Residential Construction | 12.68 | 22 |
| Resorts & Casinos | 20.59 | 16 |
| Restaurants | 18.2 | 42 |
| Scientific & Technical Instruments | 37.43 | 24 |
| Security & Protection Services | 21.29 | 15 |
| Semiconductor Equipment & Materials | 34.4 | 27 |
| Semiconductors | 46.48 | 61 |
| Software – Application | 39.76 | 168 |
| Software – Infrastructure | 31.45 | 117 |
| Solar | 25.73 | 19 |
| Specialty Business Services | 26.79 | 30 |
| Specialty Chemicals | 26.85 | 50 |
| Specialty Industrial Machinery | 29.15 | 67 |
| Specialty Retail | 23.23 | 35 |
| Staffing & Employment Services | 24.15 | 21 |
| Steel | 19.36 | 11 |
| Telecom Services | 17.45 | 33 |
| Thermal Coal | 18.57 | 6 |
| Tobacco | 17.16 | 8 |
| Tools & Accessories | 25.16 | 9 |
| Travel Services | 23.38 | 12 |
| Trucking | 29.17 | 13 |
| Utilities – Diversified | 16.66 | 10 |
| Utilities – Regulated Electric | 21.7 | 32 |
| Utilities – Regulated Gas | 19.08 | 16 |
| Utilities – Regulated Water | 21.09 | 12 |
Industries with lowest PE ratio
Industries with the lowest PE ratio are presented in the following chart and table.
| Industry | Average P/E ratio | Number of companies |
|---|---|---|
| Auto Manufacturers | 7.83 | 17 |
| Real Estate – Development | 8.17 | 8 |
| Insurance – Specialty | 10.92 | 20 |
| Credit Services | 11.27 | 41 |
| Insurance – Diversified | 11.44 | 9 |
| Broadcasting | 11.54 | 10 |
| Chemicals | 11.65 | 15 |
| Oil & Gas E&P | 11.68 | 60 |
| Insurance – Reinsurance | 12.42 | 8 |
If a company’s P/E ratio is lower than the industry average, it may suggest that investors are less optimistic about the company’s future prospects.
