Nifty 50 PE Calculation

 What is PE?

PE is a price-to-earnings ratio. It is the amount of money we pay for a company in order to earn 1 rupee. 

Suppose you buy a house of 50 lakh. Now you have rented that house for 15000 per month. Your annual income from that house is 15000 X 12 = 180000. Now PE of this asset (house) is 50 lakh / 1.8 Lakh = 27.7

Here the conclusion is that you have paid 27.7 rupees to earn 1 rupee. Is this a fair deal? I leave this question up to you?

As the company grows its earnings keep on increasing, so as its stock price. But on average PE remains the same.

But these PE values can change if the company is expecting big profit in the coming future. Vice versa its PE can decrease if has no further growth plan or expected loss.

These values help us to decide when to enter stock or exit stock.

In my below analysis, I am trying to compare the companies current PE with its average 5 years PE.

The PE values in RED are overvalued companies. If you are not expecting any big earning in the upcoming future, you shouldn't buy those stocks any further.

The PE values in Green are undervalued company. If you think these companies are stable and will continue to make a profit in the coming future then it's a good buy.

This is not a buy or sell recommendation. This is only for educational purposes.  Analyze the future growth of the company then only invest.

Currently, Nifty PE is at 41. 

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