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PE Ratio क्या होता है Stock Market में, कैसे Check करें?- Price To Earnings Ratio Analysis | #43 - YouTube
Channel: Asset Yogi
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Music
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Hello, my name is Mukul, And welcome to Asset Yogi.
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Friends, if we want to invest in the share market,
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then we must calculate the right price of that stock
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Whether that stock is currently overvalued or is undervalued
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It is very important.
I'll give you an example
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Suppose you have choices of two properties
-A property costs you ₹25 lakh
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And in that, you can get rent of ₹10K per month.
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On the other hand, you get the same property for ₹30 lakh
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And there you can get a monthly rent of ₹15K.
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So which of the two would you choose?
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If I talk about the value, then it is a normal thing that I will buy a property worth ₹30 lakh.
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Because by increasing only 5 lakh rupees, my rent is increasing by 50%.
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So it's obvious, I am getting more value for money here.
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It is very important to see the value of money before you buy anything.
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What value are we getting from the money we are investing?
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The same concept applies in the stock market.
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That's how much money we are paying for the value of any company.
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That means for the value of a share.
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And what are we getting from it?
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And how it is calculated, it is calculated from the PE ratio.
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That's means by Price Earning Ratio
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How is the PE ratio calculated and how to interpret it?
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Should you buy high PE and low PE stocks outright?
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For example, If a stock has low PE, should you buy that stock immediately?
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No, you should not and
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what other things you should be careful about, we will also talk about it in this video.
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So you must watch this video till the end.
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Let's go straight to the blackboard.
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First of all, let's understand the formula of the PE ratio.
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If you divide the price per share by earning per share then you get a PE ratio.
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What is the price per share?
Price per share is the market value of a stock
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Let say it is ₹100- ₹200, the amount that will be trading in the market will be its price per share.
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It's quite simple.
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You divide that by earnings per share.
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Total earnings of the company, net profit when you divide by the common shares,
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the total number of shares, you get Earning Per Share.
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I have already made a detailed video on how to calculate EPS exactly.
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you can watch that video
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After calculating the price per share and EPS, you can easily calculate the PE ratio.
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Take an example of this.
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Suppose the current value of a stock price is running at ₹150.
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And let say earning per share is ₹10
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So if you divide 150 by 10, the PE ratio will be 15.
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Now, what does this 15 mean?
15's means
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that you are ready to give 15 times the value of a company to the annual earnings to date.
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It simply means this.
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But the question arises whether this number 15 is more or less.
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We will know this only by comparison.
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Now, by what do we have to compare it?
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We have to compare with peer group
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Always compare it with its competitors.
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Let's take an example of it.
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Suppose there is a company A.
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And let's assume it's earning per share is ₹10
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Let's take the same sample.
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Its current price is running at Rs.150.
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And its PE is 15.
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Whether 15 is less or more, you can compare it with another company in the same industry.
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Let's say from a B company.
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And let's say the company's EPS is 15.
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and let say the current stock price of the B company is 300
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So the PE of this company,
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When you divide 300 by Rs 15, PE will be 20.
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Suppose that this is a textile industry or a software company.
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And the average PE of this industry is 18
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So by comparing, it can be said that if this company is trading on 15
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So that means this stock is a bit cheap.
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And this stock is a bit expensive compared to the industry.
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I have not said that the stock is cheap so you should buy it
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Here we are not talking about buying decisions.
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We just found out that it is a little cheaper than the industry.
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And this one is a bit expensive.
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But you can also buy expensive stocks.
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And don't buy cheap stock.
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Let us know how to do that
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Suppose we look at the finances of a company for 3 years.
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Let's say it's earning per share of the first year was 10
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It grows from 10% to 11 and then 12.
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Let's say this company is growing at the rate of 10%.
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Its stock price also increased by 10%.
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Its price-earnings ratio is being maintained at only around 10.
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If you divide 100 by 10, then 10 will come
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If we do the 110 from 11, then also 10 will come
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Now the question arises that if the price to earnings, PE ratio is less
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So should we buy that stock?
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So it is not necessary.
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Take on another exam.
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Let say, ₹10 earning per earning is coming in this stock
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And the growth of this company is going very well.
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Earnings per share doubled in the second year.
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And in the third year again got a 100% growth.
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The price is also growing well
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and its PE ratio was 15 before and it then became 25
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The PE ratio is increasing even more rapidly.
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After that, the PE ratio became 40.
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So which of these two stocks should we buy?
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First of all, see what are the features of these stocks
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The PE of this company is low and its growth is also low.
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It is increasing by only 10% every year, you can see here.
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And this company is growing 100% every year.
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That means this company is a high-growth company with high PE.
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So maybe in the future if this company continues to grow 100% or 50% every year.
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Even then this PE can be justified.
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you can buy this company
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And it seems that this company will continue to grow at maybe 10% forever.
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If there is such an industry whose growth is very less
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then it may not be able to grow in the future also.
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Let's take another example.
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Low PE can happen in which case?
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Suppose the earning per share of a company was very good earlier.
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But now it has come on the decline path.
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Let's say there has been -20% growth here and then slowly It is getting less and less.
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So its price is also decreasing and gradually its PE ratio is also decreasing.
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So now its PE ratio has become very low, so definitely you should not buy this company.
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Its PE is low and its growth is also negative.
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Growth matters a lot.
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Now let's take an example in which the PE ratio is good and growth is also good.
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Let's understand one more example.
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Earning per share goes straight from ₹10 to ₹30.
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The company becomes 3 times in 1 year itself.
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And in the second year also it increases by about two and a half times.
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Look, its price is also increasing very fast.
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But the company that is growing so fast, and increasing by 3 times,
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But Its PE ratio is only 20.
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Here we can say that its price earning ratio is moderate.
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But the growth of the company is very fast.
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So why is this happening?
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This happens many times in cyclical industries
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Suppose there is a construction company And it gets lots of contracts within 2 years.
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It may not get the contracts in the fifth and sixth years.
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There's no guarantee of that.
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That's why the industry is not giving the company a very high PE ratio.
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The industry is not giving it 50 PE it is giving only 20 PE.
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In the coming time, the earnings per share may get saturated slowly
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Let's say in the four and five years.
It may go from 70 to 80 in the 4th year.
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And it may go from 80 to 100 in the fifth year.
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So how is the industry growing?
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Is the company a cyclical industry or not?
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So it depends on all these things.
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So here I have given you four different types of examples.
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So you have to see if PE is low then why it is low.
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And if PE is high then why is it high?
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So generally when the PE is low?
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Either stock could be undervalued,
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In the Market, it might happen that
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People may not even know about the stock.
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Or maybe its growth is very less,
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The growth of the industry may be very less.
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The growth of the company may be slow.
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The debt burden on the company may be high.
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There can also be negative growth.
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Its profit can also be declined and its prospects may not be very good.
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Let say, it is a textile industry, it has to be grown at 5 to 10% only.
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So if its prospects are not good, that's why the PE may be low.
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Why PE is so high?
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Either the stock is overvalued.
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More investors have invested in it.
It has become very bullish.
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Or it is genuinely growing very well.
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And many times the company's PE is high because its future prospects are good.
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For Example, If we talk about sustainable energy in today's date,
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then its prospects can be very good.
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But it may also happen that within a company or in the industry,
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Speculation may occur.
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So one or all of these could be the reason for high PE.
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And low PE can also be caused by one or all of the reasons.
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So the question arises how to check PE Ratio?
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Firstly you have to check the PE of the competitors.
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Or you have to find the average of the industry
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If you are checking the PE of Infosys then you have to compare it with TCS, WIPRO,
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You will not compare Infosys with Unilever.
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Unilever is an FMCG company,
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so if you compare it with the software company, then it is wrong.
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You have to compare it with the software company.
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Only then you will know whether Infosys is an undervalued stock or an overvalued stock.
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Second, you have to find out why its PE is high or low?
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It is also very important for you to know whether its growth is sustainable or temporary.
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Suppose, a cyclical industry, airline industry,
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The automobile industry is growing very well in today's date.
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More cars are being sold, more automobiles are being sold.
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It is also very important to find it.
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Now quickly let me show you how to find a PE ratio online
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And in the next video, we will talk about the PEG ratio.
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In that, you will see how to link the PE ratio with the growth of the company.
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And how should you select a right stock
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Let me quickly show you how to find the PE ratio online.
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So here I have opened the details of my Infosys stock.
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By visiting the India Infoline website,
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Here you can analyze any stock by going to the search
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Here you are getting the details of Infosys, this is the current market price
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So you have to put 698.8 in the numerator
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After this, earning per share us also given
-37.02
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If you divide 698.8 by 37.02 you will get the PE ratio.
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Here it is already calculated, 18.34.
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See, you don't have to calculate this,
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it is all given on the online websites.
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PE Ratio, Earning Per Share, everything is available.
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The main thing you have to understand that how to analyze it
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After that you can even compare it, From here you will move to peer comparison
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So see here you will get a complete comparison.
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The PE Ratio of TCS is running at 26.1.
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Infosys PE Ratio is 18.34.
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Wipro has a PE ratio of 18.76
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So here you can see whether Infosys is undervalued or overvalued.
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Among these five companies, the top software company today
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TCS is running the highest PE ratio,26.1
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It means It is probably running high because TCS is showing the most growth.
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I hope you like this video, So please like and share it.
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then you can tell us in the comment section below.
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Till then keep learning keep earning
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