📊 What is P/E Ratio?
P/E Ratio shows how much investors are willing to pay for ₹1 of company's earnings. It helps determine if stock is cheap or expensive.
Formula:
P/E Ratio = Share Price ÷ Earnings Per Share
🧮 P/E Ratio Example
Company A
Share Price: ₹1,000
Earnings Per Share: ₹50
P/E Ratio: 20
Meaning: Pay ₹20 for ₹1 earnings
Company B
Share Price: ₹500
Earnings Per Share: ₹50
P/E Ratio: 10
Cheaper than Company A
🎯 P/E Interpretation
Low P/E (5-15)
Undervalued or slow growth
Medium P/E (15-25)
Fair valuation
High P/E (25+)
Overvalued or high growth
🏭 Industry P/E Ranges
IT Companies
P/E: 20-30 (High growth)
Banking
P/E: 10-20 (Stable)
FMCG
P/E: 25-40 (Premium)
Steel/Cement
P/E: 8-15 (Cyclical)
⚠️ P/E Limitations
✗ Based on past earnings
✗ Doesn't show future growth
✗ Can be manipulated
✗ Negative for loss-making companies
✗ Varies by industry
💡 How to Use P/E
✓ Compare with industry average
✓ Look at historical P/E
✓ Consider growth prospects
✓ Use with other ratios
✗ Don't use alone
🏢 Real Company P/E Examples (2026)
| Company | Share Price | EPS | P/E Ratio | Valuation |
|---|---|---|---|---|
| TCS | ₹4,200 | ₹180 | 23.3 | Fair |
| HDFC Bank | ₹1,650 | ₹110 | 15.0 | Good |
| Reliance | ₹2,500 | ₹125 | 20.0 | Fair |
| Asian Paints | ₹3,000 | ₹75 | 40.0 | Expensive |
📈 Other Important Ratios
P/B Ratio
Price to Book Value
Good: 1-3
PEG Ratio
P/E to Growth Rate
Good: <1
Dividend Yield
Dividend per share/Price
Good: 2-5%
❓ Frequently Asked Questions
Is lower P/E always better?
Not always. Low P/E might indicate problems with the company. High P/E might be justified by high growth prospects.
What is a good P/E ratio?
It depends on industry. Generally, 10-20 is considered reasonable, but compare with industry peers and historical averages.
Can P/E ratio be negative?
P/E is not calculated for loss-making companies (negative earnings). Use other metrics like P/B ratio or revenue multiples.
Should I buy stocks with high P/E?
High P/E can be justified if company has high growth potential. Research the company's future prospects and industry trends.
🔗 Related Guides
Use P/E Ratio Wisely
Combine P/E with other ratios and fundamental analysis for better investment decisions.