How to use P/E ratio while investing?
Mar 11, 08:03

Price to earnings ratio (P/E), is calculated by dividing price of the stock by the earning per share. A stock is cheap if it quotes below the P/E enjoyed by its peers or quoting below long term average P/E of the stock. Many investors look at the P/E of the popular indices to assess the health of the broader market. A low print connotes attractive valuations.

Asset allocation strategies including dynamic asset allocation schemes of mutual funds consider P/E of popular indices such as Nifty 50 among other valuation techniques while deciding the allocation to stocks. Mutual fund investors however, consider P/E of the portfolio or other appropriate benchmarks.