Understanding key financial ratios is critical to making informed investment decisions as an investor. One such ratio that is commonly used to evaluate the value of a stock is the price-to-earnings (PE) ratio. The PE ratio is a widely used metric for assessing the relative value of a company’s stock by comparing its current stock price to its earnings per share (EPS). However, today, we will discuss the definition of a PE ratio, explain why low PE ratio stocks can be attractive, list of low PE ratio stocks, and provide strategies for identifying low PE ratio stocks. Let’s begin.
What is a PE Ratio?
The PE ratio or a price to earnings ratio is a widely used valuation ratio that helps to determine the relative value of a company’s stock. While a high PE ratio may indicate that a company is more expensive relative to its earnings, it may also suggest that the company has strong growth potential. Therefore, comparing PE ratios across different companies can also help you to identify undervalued opportunities within the same industry.
What are Low PE Ratio Stocks?
A low PE ratio is a valuation metric that indicates a stock’s price is low relative to its earnings. You may generally consider low PE ratio stocks undervalued and may present an attractive investment opportunity. Thus, identifying PE ratio stocks is important because it can help you find undervalued companies. As these shares with low PE ratio companies may have strong growth potential and generate higher returns in the long run. The low PE ratio shares may also offer a margin of safety in case of adverse market conditions.
List of Low PE Ratio Shares
Now, since we have covered the basics, it’s time to look at low PE stocks in India 2022. Therefore, we have divided companies into three categories – large cap, mid cap, and small cap based on parameters like Market Cap, PE Ratio, Return on Capital Employed (ROCE), and Debt to Equity (DE) Ratio. These are the most popular low PE Stocks in India. We have curated three lists on the best Low PE Stocks in India.
1. Popular Large Cap Companies With Low PE Ratio Stocks
These are the best PE Ratio stocks of large cap companies with low PE ratios.
|Company Name||Market Cap (in Cr)||PE Ratio||ROCE||DE Ratio||Share Price|
|ICICI Bank Ltd||₹6,94,970||18.92||7.11||-||₹1,003.25|
|State Bank of India||₹5,30,746||14.51||3.87||-||₹608.45|
|HCL Technologies Ltd||₹3,62,304||19.46||28.29||10.23||₹1,329.55|
Brief Overview of Large Cap Companies
Here is a brief overview of the best large cap companies that have the lowest PE ratio stocks in India 2022 and 2023.
- ICICI Bank Ltd: A leading private low sector p/e bank in India with a wide range of financial products and services. It is also one of the best PE ratio stocks in India in 2023.
- State Bank of India: The largest public sector bank in India, offering a wide range of banking services to individuals and businesses. It is also one of the lowest PE ratio stocks in India, that are also large cap.
- HCL Technologies Ltd: A global IT services company that offers a range of technology solutions to clients across industries. It is also one of the lowest P/E ratio stocks in India in 2023.
2. Popular Mid Cap Companies With Low PE Ratio Stocks
Here is a list of mid cap companies with low PE ratio stocks in India 2022 and 2023.
|Company Name||Market Cap (in Cr)||PE Ratio||ROCE||DE Ratio||Share Price|
|Shriram Finance Ltd||₹78,655||8.87||5.85||440.12||₹2,055.7|
|Info Edge (India) Ltd||₹59,421||3.84||73.47||0.35||₹4,758|
|Power Finance Corporation Ltd||₹1,22,664||3.27||3.10||686.03||₹378.6|
Brief Overview of Large Cap Companies
Here is a brief overview of the low PE high growth stocks listed above:
- Shriram Transport Finance Company Limited is an asset financing non-banking finance company. It is primarily engaged in the business of financing commercial vehicles, while it also provides loans for equipment and other business purposes. It is one of the best PE ratio shares in India in 2023.
- Info Edge (India) Limited is a holding company involved in online classifieds business. Its segments include Recruitment Solutions, 99acres, Online Restaurant Discovery and Others. The Others segment includes Jeevansathi and Shiksha services.
- Power Finance Corporation Limited is a non-banking financial company engaged in the business of financing companies.
3. Popular Small Cap Companies With Low PE Ratio Stocks
|Company Name||Market Cap (in Cr)||PE Ratio||ROCE||Debt to Equity Ratio||Share Price|
|Lloyds Metals And Energy Ltd||₹28,588||-56.81||- 47.14||16.02||₹589.65|
|Exide Industries Ltd||₹24,977||3.75||42.29||4.89||₹290.95|
Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The data is from 6th December 2023. However, for real-time updates on stock prices and market trends, visit the smallcase stocks collection today!
Brief Overview of Small Cap Companies
Here is a brief overview of the high EPS low PE indian stocks that are small cap and listed above:
- Lloyds Metals And Energy Ltd: A fast-growing small cap stocks metals and energy company in India, with a focus on sustainable development and innovation. This is also one of the lowest PE ratio shares in India in 2023.
- Exide Industries Ltd: A leading battery manufacturer in India, with a strong presence in the automotive, industrial, and other sectors.
- Trident Ltd: A leading textile manufacturer in India, with a focus on quality and sustainability across its operations.
Why Invest in Low PE Stocks?
A lower PE ratio indicates an attractively priced stock, while a higher PE ratio suggests a relatively expensive or overvalued stock.
When considering investments in low P/E ratio stocks in India, it’s crucial to compare the PE ratio with those of peer companies and check the industry’s average PE ratio.
Invest in low PE stocks only when the company’s fundamentals are robust and it demonstrates the potential for future growth.
How to Calculate Low PE Ratio Shares?
Calculating a low PE ratio involves comparing a stock’s PE ratio to the average PE ratio of the stock market or sector. Here’s how to calculate low PE ratio:
- Determine the Market or Sector Average PE Ratio: Find the average PE ratio of the market or sector that the stock belongs to. This can be found through financial news sources or online stock screeners.
- Calculate the Stock’s PE Ratio: Divide the low stock’s current market price per share by its earning ratio per share (EPS) over the last 12 months. The formula for calculating PE ratio is as follows:
|PE Ratio = Market Price per Share / Earnings per Share|
- Compare the Low PE ratio Share: If the stock’s PE ratio is lower than the average PE ratio, it may be considered to have a low PE ratio.
For example, if the average PE ratio of the Nifty 50 index is 25 and a stock has a current market price of ₹50 per share and an EPS of ₹5, then its PE ratio would be 10. Since this is lower than the average PE ratio of the Nifty 50. This means low PE stocks in Nifty 50 to have a low PE ratio.
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Strategies For Identifying Low PE Ratio Stocks
Here are some strategies for identifying low PE ratio stocks:
- Use Stock Screeners: Online stock screeners allow you to filter and sort stocks based on various metrics, including PE ratio. This can be a quick and easy way to identify stocks with low PE ratios.
- Analyze Company Financial Statements: You can examine a company’s financial statements, such as its balance sheet and income statement, to calculate its PE ratio. This can help you to identify low PE ratio shares.
- Look for Undervalued Stocks: You can use fundamental analysis and other valuation metrics to identify undervalued stocks with low PE ratios.
- Consider Investing in Index Funds or ETFs: Index funds and ETFs offer exposure to a diversified portfolio with low PE ratios stocks. For example, there are ETFs that track the Nifty Low Volatility 50 Index, which consists of 50 low-volatility stocks with relatively low and current PE ratios.
However, investors must do their own research and/or consult their financial advisor before investing.
Features of Low PE Stocks in India
Low Price-to-Earnings (PE) ratio stocks in the Indian market exhibit distinct characteristics that investors should be aware of for informed decision-making.
- Value Proposition: Low PE stocks often represent companies trading at a lower valuation relative to their earnings. This can signify potential opportunities for value investors seeking assets priced below their intrinsic value.
- Risk and Volatility: While low PE stocks can present opportunities, they may also come with higher risk and volatility. Investors should carefully assess their risk tolerance and consider the potential for fluctuations in stock prices.
- Market Sentiment and Perception: Low PE ratios may reflect market sentiment and perception of a company. Understanding the reasons behind a low PE ratio, such as temporary challenges or industry trends, is crucial for a comprehensive analysis.
- Dividend Yields: Some low PE stocks may offer attractive dividend yields. Investors looking for income-generating investments should consider the dividend history and policies of these stocks.
- Sector Dynamics: The characteristics of low PE stocks can vary across sectors. Analyzing the broader economic and industry trends is essential to contextualize the significance of a low PE ratio within a specific sector.
Why Low PE Ratio Shares are Attractive?
Let’s have a look at the various reasons that make low PE indian stocks an attractive investment option. Additionally, the benefits or importance of PE ratio.
- Potential for Higher Returns: The market may undervalue low PE ratio shares, which means that their current price may not reflect their true value. Thus, if the market eventually recognizes the true value of the stock, you can potentially realize higher returns on their better investment.
- Lower Risk: Low PE stocks can also indicate that a stock has a lower level of risk associated with it. This is because you are paying less for each dollar of earnings generated by the company, which can provide a margin of safety if the company faces challenges or headwinds.
- Attractive Valuation: Low PE ratio stocks can be an attractive valuation opportunity. A low PE ratio stock can indicate that the stock is trading at a discount relative to its peers or the broader market, making it an attractive purchase opportunity.
- Favorable Market Conditions: Low PE ratio shares may also perform well during periods of market volatility or economic uncertainty. Thus, you may flock to lower-priced stocks with lower PE ratios as a defensive strategy during uncertain times.
- Diversification: Including low PE ratio stocks or trailing P/E stocks in a diversified portfolio can help spread risks and potentially enhance returns. Thus, by portfolio investing, you get a mix of high and low PE ratio stocks, balance your portfolio and potentially achieve better overall returns.
Example of Low PE Ratio Shares
Suppose there are two low P/E ratio companies operating in the same industry with similar financials and market capitalizations. Company A has a PE ratio of 10, and Company B has a PE ratio of 20. This means that Company A’s stock price is ₹10 for every ₹1 of earnings, while Company B’s stock price is ₹20 for every ₹1 of earnings.
In this scenario, Company A is said to have a low PE ratio compared to Company B. Thus, this suggests that the market is undervaluing Company A’s earnings potential, which can be an attractive buying opportunity. On the other hand, Company B may be overvalued, and you may want to exercise caution before investing in the stock.
It’s important to note that low PE stocks doesn’t necessarily mean a stock is undervalued or a good investment opportunity. Therefore, you should conduct thorough research and analysis of a company’s financial health, management team, growth prospects, and market conditions before making an investment decision.
To Wrap It Up…
Since low PE ratio stocks are undervalued, they can provide good returns. However, you should not solely rely on the PE ratio when making investment decisions. Be sure to examine the company’s financials, the industry PE ratio, and other fundamental metrics. Furthermore, investing in low PE ratio stocks comes with inherent risks, such as market volatility and potential losses. Therefore, you should consider diversifying portfolios and associated risks when investing in low PE ratio stocks. At last, take time to consider the investment objective, risk tolerance, and timeframe of the investment.
Here are the popular Large Cap Low PE Stocks India. Investors must conduct their own research to determine which one is better.
1. ICICI Bank Ltd.
2. State Bank of India
3. HCL Technologies Ltd.
Note: This list is for educational purpose only and not recommendatory.
If you seek undervalued stocks or lowest PE ratio stocks nifty 50, consider analyzing those with low PE ratios. However, it’s crucial to conduct comprehensive research and analysis to confirm that the low PE ratio aligns with the company’s fundamentals and doesn’t signal underlying issues.
In general, a low p/e ratio benefits both the business and potential investors. This metric is derived by dividing a company’s stock price by its earnings per share. It’s important not to compare P/E ratios between different types of companies, such as a tech company and a consumer staple company. Although, investors are advised to stay appraised of market conditions before making an investment.
Choosing a company with low P/E ratio stocks solely based on a lower ratio may not always be the best decision. Some investors argue that purchasing a stock with a lower ratio is advantageous because you pay less for each rupee of earnings. However, it’s important to do your own research or consult a financial advisor before investing.
Generally, low P/E stocks exhibit lower risk and possess a defensive nature, offering stability during market volatility. However, it’s important to do your own research or consult a financial advisor before investing.
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