Low PE Stocks: An Overview
Fundamental ratios are the key metrics to look at while investing in a company’s stock. There are various fundamental ratios such as EPS (Earnings per share), ROCE (Return on capital employed), ROE (Return on equity), P/E (Price to earning ratio), and D/E (Debt to equity ratio). Among these ratios, the PE ratio is the most important ratio to analyze the value of the stock price. In this article, what is PE ratio, Fundamentals of companies with low PE ratio, List of companies with lowest PE ratio, and things you need to keep in mind while investing in low PE stocks in India 2022.
What is the P/E ratio?
P/E (P stands for the market price per share and E stands for the earnings per share)
You can easily calculate the P/E ratio as the current market price can be known from the stock exchange’s website or broker’s website and the earnings per share can be known by dividing PAT (Profit after tax) by the number of shares. Let's say, the market price per share is Rs. 100 and the EPS is Rs. 10 then the PE ratio becomes 10. The PE ratio of 10 signifies that the investor is ready to 10 times the earnings of that share as compared to the market price. In other words. To earn Rs. 10 per share, the investor is ready to pay Rs. 100 per share.
- The lower PE ratio signifies that the stock’s price is cheap and the high PE ratio signifies that the stock’s price is a bit expensive or overvalued.
- Before making any investment decision in low PE stocks, make sure to compare the PE ratio with its peers and check the industry PE.
- Invest in Low PE stocks only when the company’s fundamentals are strong and it has the potential to rise in the future.
Fundamentals of companies with low PE ratio
|Company name||P/E||ROCE||Market cap (crores)||ROE||D/E|
|Tata Steel||4.6||31.6%||Rs. 1.33L||35.9%||0.6|
|Coal India||5.2||54.3%||Rs. 1.36L||40.3%||0.1|
|Dish TV India Ltd||4.3||25.4%||Rs. 0.03L||45.1%||0.37|
List of companies with lowest PE ratio
Tata Steel was established in 1907 and it is the first integrated private steel company in Asia. The company deals in the business of steel manufacturing, production of coal, and distribution of finished products. They manufacture special steel products such as fasteners, forging, bearings, and springs which are used in the automobile sector, construction, and capital goods. The company’s stock is trading at 1.18 times its book value and it has maintained a good dividend yield of 4.89%.
Coal India was established in 1973 and deals in the business of mining and production of coal. They are the leading supplier to power and steel sector companies. Also, they supply to other sectors like fertilizers, cement, and brick kilns. It has a market presence across 8 states in the country. The company has reduced debt to equity ratio which means it is almost debt free. They have a good dividend yield of 7.49% and ROE is 45.2% in the last 3 years. Moreover, the company has maintained a healthy dividend payout of 60.8%
Vedanta Ltd. is engaged in the business of exploring, extracting, and processing minerals, oil, and gas. They also produce silver, zinc, aluminum, lead, and iron ore. It has a market presence in South Africa, UAE, Namibia, Liberia, and Ireland. They are the market leader in producing Nickel in India. The company provides a healthy dividend yield of 16.6% and has delivered good profit growth of 28.8% in the last 5 years. The company is expected to give good results in the next quarter.
GAIL (India) Ltd. was established in 1984. They earn most of their revenue from natural gas trading/ marketing and the rest from petrochemicals, Natural gas transmission, LPG & other liquid hydrocarbons, LPG transmission, and City gas. The company has a position in the top 10 global LNG portfolios. The company’s stock is trading at 0.91 times its book value and has a good dividend yield of 7.39%. It has delivered good profit growth of 30.5% CAGR in the last 5 years and maintained a healthy dividend payout of 34.4%.
Dish Tv India Ltd provides DTH services and is the leading DTH company in the country. It offers several SD and HD channels to meet the needs of different customers belonging to different parts of the country. In 2019, they launched an OTT platform named ‘Watcho”. The compounded profit growth of the company over the last 3 years is 30%.
Investing in stocks with low P/E can give you good returns as they are undervalued. However, do not make investment decisions solely based on the P/E ratio. So, do check other fundamental metrics, the industry PE ratio, and the financials of the company. Also, make sure to analyze the objective of your investment, risk tolerance and timeline of your investment.
This is not an investment advisory. The blog is for information purposes only. Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, goal, time frame, risk and reward balance, and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs. The performance and returns of any investment portfolio can neither be predicted nor guaranteed.
Can I invest in a low P/E ratio stock?
P/E ratio helps you to evaluate whether the stock’s price is overvalued or undervalued. However, you should not make your investment decision solely based on the P/E ratio. Hence, you should check other fundamental metrics, and financials, and read the annual report of the company to make better investment decisions.
What is the list of low P/E ratio shares?
The list of stocks with low P/E ratio are Forbes & Company Ltd, Standard Industries Ltd, EKI energy, Kwality Pharma, Suumaya Industries Ltd, Jainam Ferro, Supreme Petrochem Ltd, Jindal Photo, Andhra Petrochem Ltd, Balaxi Pharma, etc.
What is the best P/E ratio?
According to Benjamin Graham, the P/E ratio ranging from 10 to 15 is considered the best P/E ratio.
What is the meaning of the lowest P/E ratio stocks?
The lowest P/E ratio stocks in India mean that the stock is less expensive and has the potential to grow in the future.