Which are the high PE valuation stocks in India right now?
As per Equitymaster's Stock Screener, here is a list of the top high PE valuation stocks in India right now...
* The PE is based on trailing 12 month earnings
Generally speaking, high PE stocks are considered to be overvalued stocks. And low PE stocks are said to be cheap.
Of course, there are other parameters you should take into account before forming a hard opinion on the stock valuation.
What is the PE ratio?
The Price to Earnings (P/E) ratio is a valuation ratio that is used to determine whether a stock is undervalued or overvalued.
It compares the company's stock price with its earnings per share.
How is the PE ratio calculated?
The PE ratio is calculated by dividing the stock price by the company's last 12 months earnings per share (EPS).
PE Ratio = Stock Price/Earnings per share
Watch this for a detailed explanation of the PE Ratio.
Is a high PE ratio good?
A high PE ratio, whether compared to the industry average or its historical average, means you are paying more for each rupee of earnings.
So if a company earns 10 rupees, and you are paying 10 times earning (10 being the PE), you are buying the stock at Rs 100 (Rs 10 * 10).
But if you are willing to pay 15 times (a PE of 15), then you are paying more i.e. Rs 150 (Rs 10 * 15)for the stock.
Therefore, higher the P/E ratio, the more expensive the stock and vice versa. However, a high P/E ratio can sometimes be an indicator of a company with good growth prospects.
What is a good PE ratio?
There isn't anything such as a good PE ratio for a stock. A good P/E ratio in one industry can be bad in another.
If you're looking for a list of top value stocks, you would want the P/E ratio to be low. However, if you're looking at a list of high growth stock, it is likely that the PE ratio will be high. Since the company has high-flying earnings, it's likely a lot of investors will want to buy its stock.
What are the other important parameters to consider when looking at valuations?
One popular ratio, other than PE, is the Price to Book Value ratio (P/BV). This is particularly useful when evaluating banks and financial companies. You can access a list of the most attractive stocks based on P/BV here...
EV to EBITDA (Enterprise Value to Earnings before interest, taxes, depreciation and amortization) ratio is also another popular ratio used in the valuation of service companies or companies that are yet to turn profitable.
The thumb rule is that a company with lower EV/EBITDA is more attractive.