What are the determining factors in a PE ratio
Currently, the Sensex and Nifty are trading at one-year forward price to earning multiples of 19.09x and 18.45x, respectively, compared to their 10-year averages of 19.3x and 18.5x.
The ratio is close to highs scaled in December 2007 just prior to the unfolding of the Global Financial Crisis
According to Moneycontrol analysts, the Nifty 500 Index shows a wide range of price-to-earnings (PE) ratios among its constituent stocks. About 22 stocks have PE ratios between 1 and 10 based on the trailing 12-month earnings, while 77 stocks fall in the 10-20 PE range.
Book value and PE ratio are common yardsticks to value a business. But they need to be put in perspective to arrive at a true picture.
PEG ratio is the P/E ratio dividend by the EPS growth of a company. The general thumb rule is that an investor should avoid buying into a company when the PEG ratio is in excess of one.