Mutual Fund

P/E values of 282 stocks sharply below 5-year averages; your value picks lie among them

Price-to-earnings (P/E) ratios of 57 per cent of BSE500 index stocks have fallen below their five-year averages as of November 19 following the relentless hammering. P/E is a valuation measure that analysts use to know whether a stock is overvalued or undervalued with respect to its earnings growth. Multibaggers graphite electrode majors HEG and Graphite India, too, figure in the list, despite having given up to 75 per cent returns so far this calendar. Market veterans, however, caution not to jump the gun as often taking investment decisions on the basis of P/E alone makes little sense. One shouldn’t invest just because a stock’s current P/E is below its five-year average. It may be an opportunity if profits have risen more than the proportionate increase in stock price and the market has missed the opportunity, says G Chokkalingam, said. One has to ensure that there is no doubt on the company’s future growth potential. P/E ratios of stocks such as Reliance Communications, Dewan Housing Finance Corporation, PC Jeweller, Manpasand Beverages, 8K Miles and Kwality were all trading far below their 5-year averages after these stocks plunged between 60 per cent and 93 per cent on a year-to-date basis. Besides attractive valuations, investors also need to zero in on certain other things.

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