Loading
Market Intelligence › Blogs And Updates
What is PE ratio, how is it calculated, how to use it for stock valuation — complete Hindi guide.
Published by The Retail Trader · AUG 13, 2026 · Features
What is PE ratio, how is it calculated, how to use it for stock valuation — complete Hindi guide.
The full form of PE ratio is Price to Earnings ratio. It tells how much a stock's price is in comparison to its earnings (profit).
PE Ratio = Stock Price / Earnings Per Share (EPS)
Simple definition: > PE ratio = how much money you are paying for every ₹1 of profit. PE 20 = ₹20 earned for every ₹1 profit.
Example:
• Reliance price: ₹2,500
• Reliance's EPS: ₹100
• PE Ratio: ₹2,500 / ₹100 = 25
Meaning: You are giving ₹25 for every ₹1 of Reliance's profit.
Keep these five points in mind:
• < 15 — Meaning: Cheap / Undervalued, Action: Potential BUY
• 15-20 — Meaning: Fair value, Action: Neutral
• 20-25 — Meaning: Slightly expensive, Action: Caution
• 25-30 — Meaning: Expensive, Action: Avoid fresh buying
• > 30 — Meaning: Very expensive, Action: Profit booking
Important: PE alone cannot call a stock cheap or expensive. Industry PE, growth rate, market conditions — everything has to be seen.
1. Trailing PE (TTM):
• Based on: Last 12 months earnings
• Formula: Current price / Last 4 quarters EPS
• Use: Most common, backward-looking
2. Forward PE:
• Based on: Expected next 12 months earnings
• Formula: Current price / Expected EPS
• Use: Forward-looking, growth expectations
3. Nifty 50 PE:
• Based on: Nifty 50 index level / Nifty 50 aggregate EPS
• Use: Overall market valuation
Keep these five points in mind:
• < 16 — Market Valuation: Very cheap, Historical Action: Strong BUY (rare)
• 16-18 — Market Valuation: Cheap, Historical Action: BUY
• 18-22 — Market Valuation: Fair, Historical Action: Neutral
• 22-26 — Market Valuation: Expensive, Historical Action: Caution
• > 26 — Market Valuation: Very expensive, Historical Action: Profit booking
Historical Context:
• 2008 crash bottom: Nifty PE ~11
• 2020 COVID bottom: Nifty PE ~17
• 2021 peak: Nifty PE ~40
• 2026 current: Nifty PE ~22-24
Rule: Buy Nifty PE < 18 (long-term). Caution on Nifty PE > 25.
PE of high-growth companies is very high (50-100+). Meaning not expensive – paying premium for growth.
Example: PE of TCS is 30. meaning expensive? No – justifies the growth of IT sector.
If the company is in loss (negative earnings) → PE is not calculated. Then use other metrics (P/S, EV/EBITDA).
The PE of cyclical companies (metals, cement) is high at the bottom of the cycle (earnings low), and low at the top (earnings high). Wrong signal is received.
One time profit or loss can distort PE. Use adjusted PE.
Keep these five points in mind:
• PE Ratio — Formula: Price / EPS, Best For: Profitable companies
• P/B Ratio — Formula: Price / Book Value, Best For: Banking, finance
• P/S Ratio — Formula: Price / Revenue, Best For: Loss-making companies
• EV/EBITDA — Formula: Enterprise Value / EBITDA, Best For: Cross-company comparison
• PEG Ratio — Formula: PE / Growth Rate, Best For: Growth stocks
PEG Ratio — PE + Growth:
• PEG = PE Ratio / Earnings Growth Rate
• Example:
• PE = 25, Growth = 20%
• PEG = 25 / 20 = 1.25
• PEG < 1 = Undervalued (cheaper than growth)
• PEG 1-2 = Fair value
• PEG > 2 = Overvalued (expensive than growth)
PEG ratio is more useful than PE — it also considers growth rate.
TCS PE is 30, HDFC Bank PE is 20 — Is HDFC cheaper? No! PE of IT and Banking is different. Compare in the same industry.
Compare the stock's current PE with its 5-year average PE:
• Current PE > 5Y average → Expensive relative to history
• Current PE < 5Y average → Cheap relative to history
High PE + High growth = OK High PE + Low growth = Expensive Low PE + Low growth = Value Low trap PE + High growth = OPPORTUNITY 🔥
PE is high in bull market (sentiment premium). PE is low in bear market (fear discount). Interpret according to the cycle.
Keep these points in mind:
• 📌 PE RATIO QUICK REFERENCE
• FORMULA:
• 📊 PE = Stock Price / EPS
• 📊 Nifty PE = Nifty Level / Nifty EPS
• 📊 PEG = PE / Growth Rate
• INTERPRETATION:
• 📊 < 15 = Cheap (potential BUY)
• 📊 15-20 = Fair value
• 📊 20-25 = Slightly expensive
• 📊 25-30 = Expensive (caution)
• 📊 > 30 = Very expensive (avoid)
• NIFTY PE:
• 📊 < 16 = Very cheap (strong BUY)
• 📊 16-18 = Cheap (BUY)
• 📊 18-22 = Fair (neutral)
• 📊 22-26 = Expensive (caution)
• 📊 > 26 = Very expensive (profit booking)
• LIMITATIONS:
• ⚠️ Growth stocks have high PE (not always expensive)
• ⚠️ Loss companies do not have PE
• ⚠️ PE misleading of Cyclical companies
• ⚠️ Compare in same industry
• BEST USE:
• ✅ Compare with Historical PE
• ✅ Look at PE with growth rate (PEG)
• ✅ Consider the market cycle
• ✅ Compare with industry average
Keep these five points in mind:
• What Is EPS?
• What Is Market Cap?
• What Is a Dividend?
• Nifty 50 Companies List 2026
• Fundamental Analysis Guide
The Retail Trader — educational market analysis. Not investment advice.
This article is for educational purposes only. It is not a buy or sell recommendation, a claim of guaranteed returns, or advisory guidance. Exchanges, SEBI and RBI change rules, rates and procedures from time to time, so verify every figure with your broker or an official source.