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High PE Ratio Stocks

While making investment decisions, it is important to look at financial ratios. One of the important financial ratios is the Price to Earnings (PE) ratio.

PE ratio as the name suggests is the relationship between the share price of a company and its earnings. PE ratio is derived by dividing share price by earnings per share (EPS).

PE ratio indicates how much an investor is willing to pay for each rupee of profit earned. It shows the intrinsic attractiveness of a company.

When a company's PE ratio is higher than a justified PE ratio, the company is believed to be overvalued.

That means investors are willing to pay more for the worth of the shares because they believe that their investment in a growing company would fetch higher returns.

However, high PE stocks tend to be unpredictable. Since the companies have already flourished, there might be little to no scope for rapid growth.

This makes high PE stocks risky because a high amount of investment might turn into losses if not invested carefully.

Studying the PE ratio in isolation may not give a clear picture. There are various aspects that an investor has to consider while selecting fundamentally strong stocks.

Check out Equitymaster's powerful stock screener for finding the high PE stocks.

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