Module 4 · Valuation and Ratios
Price-to-earnings compares the share price to profit per share.
The P/E ratio is the share price divided by earnings per share. It tells you how much you pay for each rupee of profit.
A high P/E often means investors expect strong future growth; a low P/E can mean the market sees slower growth or higher risk. But a low P/E is not automatically a bargain.
Always compare a company's P/E with its own history and with peers in the same sector, never in isolation.
Example: HDFC Bank vs Coal India
A bank like HDFC Bank may trade at a higher P/E than a miner like Coal India because investors expect steadier growth. Different sectors, different normal P/E ranges.
A P/E of 20 means:
Why can't you compare a bank's P/E directly with an IT company's P/E?