How are several companies trading above the P/E ratio of more than 40


New Member
I am a newbie to stock market. I was looking at the P/E ratio of companies and I find several companies, especially in the FMCG sector trading more than 40. Even bigger companies like EICHER Motors and Voltas trade above P/E ratio of more than 40.

I do understand that P/E ratio is just one part of the story and there may be legitimate reasons that a company may trade much about that. However, even discounting the reasons such as earning growth, is it possible to have so many companies (I don't have the exact number and I could not find a source where I could look at only the P/E ratio of companies in India.).

Put another way, does it make any sense to purchase stocks in companies with P/E ratio of more than 40. The nifty price to earnings ratio is around 20 I believe.

Thank you for any inputs


PHYSICAL SHARES consultation
if a reasonably known management has a company share with higher P/E it is indication that the scrip is fancy among investors .There is a MNC company trade at rs 26000 per share (PE around 93) and since public issue at rs 10 in February 1992 never paid any dividend ,bonus ,right or split .about a month back the market price was in 19000 .3M INDIA LTD.there may not be any such case in the history of market among regularly traded companies. so in my view market fancy matters a lot too.
Higher P/E isn't necessarily a bad sign - it just shows that it's popular among investors and that itself could be a good sign. And by the way - 40 is not a big number. Avenue Supermarts(DMART) P/E right now is above 100(112 at the time of writing).
If you're investing in a stock for the long term, high P/E wouldn't be ideal. On the other hand - it shows positive investor sentiment in the short term at least, which is a good signal. Bottom line is - an investing decision shouldn't be made purely based on P/E alone, it should be a combination of the stats that matter to you and your style of investing.

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