Updated on 1 June 2017
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Companies having low PE ratio compared to industry PE have given best returns
Companies having low PE ratio compared to industry
PE have given best returns
Companies which have a low P/E multiple compared to industry P/E have given exceptional returns of up to 280 percent.
There are a lot of methods which can help you pick the right kind of stocks for trading, but for investment, focus on few parameters which could help you to pick winning bets.
A small analysis run on BSE 500 companies on return on capital employed (RoCE) and Price-earnings (P/E) ratio threw many companies which have outperformed Sensex returns in the last one year. These companies have either more than doubled or nearly doubled in the last one year.
Companies which have a low P/E multiple compared to industry P/E have given exceptional returns of up to 280 percent in the last one year, which includes names like Escorts, Avanti Feeds, Caplin Point, REC, Hindalco, Jk Tyres, Gujarat Narmada, Sun TV, IOC, Navneet Education etc. among others, Capitaline data showed.
PE is one of the important and mostly used price multiples for valuation. A higher PE indicates better operating performance. It is the most common, and widely available indicator available to investors.
It is a very common and important valuation ratio used to measure the company. The standard rule is -- the lesser the PE better the stock and vice versa. However, that might not apply to growth companies.
If PE of a stock is lesser than the industry PE or its peers then it gives a sense of confidence to buy the stock. However, when the company is in a growth phase, then a higher PE is justified for those stocks, which will not make that stock look overvalued, suggest experts.
However, PE should not be the only parameter used for evaluating a stock. If you are not seasoned investor, chances are that you might make a mistake. Novice investor presumes when any company is trading around or below industry PE it is trading at a lower valuation.
Return on Capital Employed or RoCE is another ratio which investors can use when making their investment decisions. Usually, a figure over 12 percent is good for any company.
Almost 75 percent of the companies mentioned in the list have a ratio above 12%. The data is calculated based on March 2016 balance sheet numbers, Capitaline data showed.