Question 1

What is the P/E ratio and what does it tell you?

Accepted Answer

The Price-to-Earnings (P/E) ratio = Stock Price ÷ Earnings Per Share (EPS). It tells you how many years of current earnings you're paying for. A P/E of 20 means you pay 20x this year's earnings. Lower generally means cheaper, but context matters — compare within the same sector.

Question 2

What is a good P/E ratio for Indian stocks?

Accepted Answer

It varies significantly by sector. Banking stocks typically trade at 10–15x P/E. IT companies at 25–35x. FMCG companies at 40–60x. Compare a stock's P/E to its own sector average, not across sectors, for a meaningful assessment.

Question 3

What is EPS (Earnings Per Share)?

Accepted Answer

EPS = Net Profit ÷ Total Shares Outstanding. It represents how much profit the company made per share. You can find EPS on financial sites like Screener.in, Moneycontrol, or the company's annual report under earnings data.

Question 4

Is a low P/E always a good sign?

Accepted Answer

Not necessarily. A low P/E can mean a stock is undervalued — a genuine bargain. But it can also signal declining earnings, a structural industry problem, or high debt. Always investigate why the P/E is low before concluding it's cheap.

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