Investors consider various fundamental ratios when investing in a company's stock, such as Earnings per Share (EPS), Return on Capital Employed (ROCE), Return on Equity (ROE), Price to Earnings Ratio (PE), and Debt to Equity Ratio (D/E). Among these, the PE ratio is a staple in financial analysis, used to evaluate a stock's valuation in the market.
Are you curious about companies with low PE ratios? Understanding the PE ratio's significance and calculation method is crucial. Here's an insight into the meaning of PE, its importance for investors, and a glimpse into Indian companies with attractive low PE ratios, guiding your investment decisions.
What is the P/E Ratio?
The PE ratio compares a stock's price to the company's earnings, offering a quick glimpse into whether a stock is valued high or low relative to its profits. A high PE ratio may indicate that the stock is expensive compared to its earnings, while a low PE ratio suggests it is cheaper. This metric is essential for making informed decisions about buying or selling stocks based on their current financial performance.
List of Low PE Ratio Stocks to Invest
| SNo | Top Low PE Ratio Stocks | Sector |
| 1. | State Bank of India (SBI) | Banks |
| 2. | Oil and Natural Gas Corporation (ONGC) | Crude Oil & Natural Gas |
| 3. | Coal India | Mining & Mineral products |
| 4. | Adani Power | Power Generation & Distribution |
| 5. | Indian Oil Corporation Ltd (IOCL) | Refineries |
State Bank of India (SBI): SBI stands as the largest multinational banking and financial services entity in India, with a significant presence in deposits and advances. It's known for its comprehensive range of services, including personal and commercial banking, loans, and wealth management.
Oil and Natural Gas Corporation (ONGC): As India's premier crude oil and natural gas company, ONGC plays a vital role in the country's domestic production, contributing significantly to India's petroleum needs.
Coal India: This leading coal mining and refining company dominates India's coal production, contributing significantly to the national output.
Adani Power: Renowned as India's largest private thermal power producer, Adani Power boasts an impressive installed capacity, underscoring its pivotal role in the energy sector.
Indian Oil Corporation Ltd (IOCL): IOCL, a major player in India's energy landscape, commands a significant share in petroleum products and the downstream sector, highlighting its importance in meeting the country's energy demands.
How to Calculate PE Ratio
The formula for calculating the Price-to-Earnings (P/E) ratio is:
Current Market Price (CMP) of the Stock / Earnings Per Share (EPS)
For example, if the current market price of a stock is ₹126.42 and its EPS is ₹14, the P/E ratio would be ₹126.42/₹14 = 9.03. This indicates that for every ₹14 of earnings, the market is pricing the stock at about ₹126.42, or in other words, investors are willing to pay ₹9.03 for every rupee of earnings.
Please Note: The P/E ratio should be compared with the average of the industry the company operates in, to get a better sense of its market standing.
Key Takeaways
A lower PE ratio indicates a stock's affordability, while a higher PE suggests it may be overvalued. When considering investment in low PE stocks, it's crucial to compare the PE ratio with industry peers and assess the company's fundamentals and potential for future growth.
Conclusion
Investing in stocks with low PE ratios can offer attractive returns as they are often undervalued. However, the PE ratio should not be the sole criterion for investment decisions. Other fundamental metrics, the industry PE ratio, and the company's financials should also be evaluated. Additionally, consider your investment objectives, risk tolerance, and timeline before making any decisions. This guide is for informational purposes and not investment advice. Always exercise due diligence and consider your specific investment needs when selecting a portfolio.
Can I invest in a low P/E ratio stock?
P/E ratio helps you to evaluate whether the stock’s price is overvalued or undervalued. However, you should not make your investment decision solely based on the P/E ratio. Hence, you should check other fundamental metrics, and financials, and read the annual report of the company to make better investment decisions.
What is the list of low P/E ratio shares?
The list of stocks with low P/E ratio are Forbes & Company Ltd, Standard Industries Ltd, EKI energy, Kwality Pharma, Suumaya Industries Ltd, Jainam Ferro, Supreme Petrochem Ltd, Jindal Photo, Andhra Petrochem Ltd, Balaxi Pharma, etc.
What is the best P/E ratio?
According to Benjamin Graham, the P/E ratio ranging from 10 to 15 is considered the best P/E ratio.
What is the meaning of the lowest P/E ratio stocks?
The lowest P/E ratio stocks in India mean that the stock is less expensive and has the potential to grow in the future.