Hey Guys...

Today we are discussing a very important term that is P/E ratio.

That means "Price to earnings ratio". So please read my post complete after that you wouldn't have any doubt about P/E Ratio and you don't need to refer to any other source to know about the P/E ratio.

So Let's Start...

Points 📍to be Covered:-

. Formula

. How to check and understand PE

. Overvalued or Undervalued

. Type of P/E Ratios

. Conclusion : Dependendecy only on P/E Ratio

Formula:

We can get PE Ratio by dividing the Price of a Share by Earning per Share

PE Ratio =Share Price/Earnings per Share(EPS)

If the PE Ratio of any Share is 20 that means that the company is spending ₹20 to earn ₹1

How to check and understand P/E :

We can check the PE Ratio of any stock in any stock broker like Groww, 5Paisa, Upstox, Angel One etc. by simply opening the broker's site or their application.

Simply select the stock open fundamentals you will get all fundamentals of that stock

You can analyse it according to your investment strategy you can check its data in different time ⌚frames like 3 years, 5years, 10years etc.

I will definitely suggest you check the company's PE in a long time frame to get a better decision because PE helps in giving you long term investment strategy.

📝NOTE: Please don't take short term investment decisions by observing PE Ratio.

Overvalued:

We can check the company's PE if it goes near 25 or above then it determines that the stock is overvalued.

Undervalued:

We can check the company's PE if it goes near 15 or below it then it determines that the stock is undervalued.

Conclusion:

We can't conclude that we have to sell or buy a stock only by observing PE or if

we only observe PE then we have to compare its PE to competitors and then take decisions wisely.

For E. g-

If we take the example of SBI & HDFC Bank.

PE of SBI=12.92

PE of HDFC=19.08

Then if conclude only by PE Ratio SBI is better than HDFC

Point 📍: As low as PE Ratio the better the stock is.

Types of PE Ratio:

There are 2 types of PE ratios

. Trailing PE

. Foreward PE

Trailing PE: TTM(Trailing Twelve Month PE):-

It is the calculation of PE by observing the last 12 months' data, earnings etc.

Foreward PE:-

The forward PE is calculated by estimating the company's earnings in the future🔮 .

Conclusion: Dependency on PE

By reading the whole blog post you would be understood that we can't depend only on PE RATIO while investing in STOCK MARKET 📈 . If we are investing by using only PE RATIO then it would be definitely a risky task, we must have to analyse whole fundamentals of the company like- ita PB ratio, PE ratio, EPS, ROE, RSI, Market Cap., Debt to Equity ratio etc. then invest, it would definitely a wise decision.

P/E RATIO: Price to Earning Ratio